Soon after the Treasury Department announced it was rejecting the Central States Pension Fund’s application to cut retiree benefits in a bid to stave insolvency, the International Brotherhood of Teamsters and their supporters were quick to applaud the decision.

Read: UPS warns of pension cost of U.S. backs benefit cut

For Teamster members, an approval of the application would have meant pension cuts for roughly 270,000 members, beginning as early as this July.

Under the 2014 Multiemployer Pension Reform Act, collectively bargained pension plans expected to be insolvent in a ten-year period were given the opportunity for their trustees to apply for pension cuts, so long as doing so would assure future plan solvency.

But proposed cuts would be subject to certain provisions under MPRA and ultimately would have to be approved by Treasury. Last year, attorney Kenneth Feinberg, who oversaw administration of the September 11 victim compensation fund and the BP Deepwater Horizon disaster relief fund, was tapped to oversee the application process for benefits cuts under MPRA.

In denying the Central States Plan’s application to reduce retiree benefits, Feinberg said the proposal failed to satisfy the “statutory criteria” under MPRA.

The application assumed too high a rate of return on invested plan assets, failed to equitably reduce benefits for some members, and failed to adequately communicate the complexities of the plan to Teamster members, explained Feinberg in a letter to plan trustees.

In a statement, Teamsters general president, Jim Hoffa, personally thanked Feinberg and the Treasury Department.

“We worked with thousands of retirees to educate Treasury and Congress on the devastating impact of the proposed cuts. This decision means that there won’t be any cuts to retirees’ pensions this July or the foreseeable future. We will find a solution to this problem that will allow members and retirees to continue to retire with dignity,” said Hoffa.

Days after the application was rejected, Thomas Nyhan, executive director of the Central States fund, offered a sobering picture to reporters on a conference call.

“We’re going to end up in insolvency unless we have another plan,” said Nyhan, who suggested Treasury officials took a hands-off approach with Central States’ trustees and actuaries throughout the application process.

“I am at a loss why we didn’t have a constructive dialogue,” said Nyhan, who implied there could have been modifications to the application with more Treasury input.

Feinberg, in a separate press call with reporters, was asked what Central States’ next move was: “You would have to ask Central States that.”

Nyhan implied Central States may re-apply for benefits cuts, but warned any new strategy would involve more severe cuts than what were first proposed. Under the first application, affected union members would have seen promised benefits cut 22 percent, on average.

In a letter to lawmakers, Treasury Secretary Jack Lew said Central States may choose to reapply and “propose even larger cuts” in order to meet the requirements of MPRA.

Both Nyhan and Sec. Lew raised the specter of Congressional action to bail out the beleaguered pension, which faces an $11 billion shortfall.

“Absent Congressional action, by the time the Central States plan becomes insolvent, the Pension Benefit Guaranty Corp. multiemployer insurance fund may itself already be insolvent,” wrote Lew.

The Pension Rights Center, which was behind the grassroots organization of Teamsters that waged an effective campaign urging lawmakers--and Treasury officials--to fully consider the toll proposed cuts would have on affected retirees, has also called on Congress to step in.

In a statement, the Center called on lawmakers of both parties to repeal the provisions of MPRA that allow benefit cuts, and said lawmakers should work for “realistic solutions” that would save the Central States Plan and PBGC.

To date, at least two pieces of bi-partisan legislation have been introduced in both chambers of Congress that would limit MPRA’s statutory scope.

But some pension experts have warned against neutering MPRA. In testimony before the Senate Finance Committee last March, Josh Gotbaum, former director of PBGC, said repealing MPRA would guarantee the collapse of the multiemployer pension system.

“MPRA is the best alternative, miserable though it is, because it gives plans a chance to keep benefits above PBGC levels,” Gotbaum told lawmakers.

PBGC’s maximum protection is less than $13,000 for participants in its multiemployer insurance program. Moreover, PBGC’s multiemployer program’s funding deficit is around $52 billion. Gotbaum said the Central States Plan’s demise would sound the death knell for PBGC’s multiemployer insurance program.

In a recent interview with MarketWatch, Gotbaum, now a guest scholar at The Brookings Institute, called Treasury’s decision to deny Central State’s application “a case of political cowardice.”

On its editorial page this week, the Wall Street Journal argued that Treasury was “looking for a pretext to reject the Central States Plan,” and said the Department is “punting the multiemployer pension crisis to the next Administration and Congress, which it hopes will supply a bailout.”

A request for comment from Teamsters officials on the prospect of a bailout was not returned.

Instant Insights /

Central States pension decision: Pyrrhic victory for Teamsters

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