PRC testimony to Treasury on proposed rules for retiree benefits cuts under MPRA (September 10, 2015)

PRC testimony to Treasury on proposed rules for retiree benefits cuts under MPRA (September 10, 2015)

On September 10, 2015, the U.S. Treasury Department held a public hearing on proposed and temporary rules for implementing pension cuts for retirees in severely troubled multiemployer pension plans, as authorized by the Multiemployer Pension Reform Act of 2014. PRC Director Karen Ferguson testified at the hearing. Below are her remarks.

I am Karen Ferguson, Director of the Pension Rights Center, which most of you know, is a non-profit consumer organization that has been working since 1976 to protect and promote the retirement security of American workers, retirees, and their families. I appreciate the opportunity to testify today on the proposed and temporary regulations under the Multiemployer Pension Reform Act of 2014.

You can see the importance of this issue by simply looking around this room. More than 150 retirees and their spouses, widows and widowers, and other family members have come to Washington today, at their own expense, to let you and their members of Congress know that they are looking to you to protect their pensions. 

Most of the retirees you are hearing from are participants in the Central States Teamsters plan. That is because their trustees have told them that their pensions are about to be cut. Estimates are that there are hundreds of thousands of other retirees who will also be affected. They just don’t know it yet. 

I know that your mandate today is not to change the law, only to figure out how best to implement it, so I will focus most of my statement on the proposed regulations. But since this is the first and only public hearing where retirees and their advocates have had an opportunity to express our views I would at least like to register a protest at the way MPRA was enacted. 

As you know, it was negotiated by a small group of legislators and lobbyists in what can only be called a back-room deal. There were no legislative hearings on the bill and no Floor debate. Members of Congress were told that a vote against the bill was a vote to shut down the federal government. This is not the way the democratic process is supposed to work. No wonder the retirees here today feel that they have been betrayed.

As you also know, MPRA is unprecedented, overturning 40 years of law by allowing trustees to reduce the benefits of retirees in ongoing plans. It has also established a dangerous precedent that could lay the foundation for cuts in earned pensions well beyond the multiemployer sphere.

Contrary to the claims of MPRA’s advocates this was not necessary to save either financially-troubled plans or the PBGC. It was just the easy thing to do. Fortunately, there is now an alternative to the draconian cuts authorized by MPRA, the Keep Our Pension Promises Act of 2015 (S. 1631 and H.R. 2844). We very much hope that in another forum at another time you and your agencies will consider supporting this legislation.

Turning to the proposed regulations. In our written comments we urged you to use the maximum limits of your authority to implement MPRA in ways that will be most protective of retirees and their beneficiaries. In general, we believe you have accomplished this goal and we commend you for your efforts. Many of the rules in the proposed regulations offer meaningful protections to participants, particularly elderly and disabled individuals who are among the most vulnerable.  

We particularly applaud your decisions to ensure that participants who retire on disability pensions remain exempt from the cuts even if they later qualify for retirement pensions that are subject to cuts. We also think the provisions ensuring that divorced spouses are treated the same regardless of how they choose to collect their pension shares make sense. 

At the same time, there are areas where we think improvements in the regulations are needed. To highlight a few:

• There are a number of places in the statute where terms such as ‘reasonable’, ‘in good faith’, ‘justifications’, ‘reasonable measures’, and so on, are used to define what types of information are provided by plan sponsors, the range of actuarial assumptions, and determinations of whether plans have taken ‘all reasonable measures’ to avoid insolvency. Our written comments addressed each of these provisions individually, but generally we believe opportunities for discretion by plan sponsors must be constrained to the maximum extent by the regulations, by requiring outside experts to evaluate the plan information, independent analyses by experts acting in a fiduciary capacity, or specifying safe-harbor actuarial assumptions the plans must follow absent compelling justification.  
• On the issue of equitable allocation of benefits, in general, we applaud the approach taken by the proposed regulations, and we especially believe the illustrations should be helpful to plan sponsors. But we believe further improvements could be made by specifying that benefit cuts should not disproportionately affect retirees. 
• Because collective bargaining agreements sometimes give active employees opportunities to save for retirement in defined contribution or hybrid plans, we believe the availability of those benefits should be added to the list of factors that trustees should consider in deciding how to allocate suspensions.  
• And we strongly urge that no subsidized qualified joint and survivor annuity should be subjected to a special class reduction as such an action would undo the core benefit structure of the pension plan, which was not the intent of MPRA. 
• Also, benefit improvements for active workers should be accompanied by equivalent improvements for retirees. Guidance should clarify that these improvements for active workers apply to other qualified plans, so employers cannot skirt these rules by bumping up 401(k) contributions for active workers – and still cut retirees in the old plan. 
• We also believe that more attention should be paid to the selection of the Retiree Representative in larger plans. We believe the Treasury Department should set standards and a procedure for appointing someone who is truly committed to representing participants and their beneficiaries. Moreover, the independence, competence, and actions of a retiree representative should be considered in deciding whether the plan sponsor’s decision to suspend benefits was “clearly erroneous.” 

I would also like to address briefly the recently issued temporary regulations relating to the voting process. Again, we believe that have generally found a middle ground that protects retirees’ benefits considering the strictures in the implementing legislation. We are especially pleased that ballots will be required to be delivered by first class mail, as older participants are not often comfortable using the Internet. We also support the decision to have the Labor Department, rather than plan trustees, draft the statement summarizing comments of participants opposed to the cuts. And the proposal to have the Treasury Department appoint the firm that will conduct the vote.

At the same time we ask that you reconsider the proposal to have voting take place only online or by telephone. Including a business return envelope with the ballot would not be costly, and since many participants will use the online or phone options, the cost of counting paper ballots will be minimal. In a vote this consequential, every effort should be made to make voting as easy as possible. 

It is important to note that in a vast majority of multiemployer plans, retirees do not have an effective trustee voice. In many cases, you will be the only voices representing retirees’ interests. 

For that reason, we are very pleased by the appointment of the Special Master to help provide an impartial and informed review of applications – and that you are here today. We urge you approach this difficult task with a healthy skepticism to ensure that each application for suspension of benefits is fully justified and verified by empirical data. It is particularly important to look at the assumptions that underlie each application and to ensure that there are documentable facts – not just assertions – made by plans showing that they are in critical and declining status, to ensure that they have indeed taken all reasonable measures to avoid insolvency, and to ensure that the benefit cuts are distributed equitably. 

It would also be helpful if your office could become a point of contact for participants and beneficiaries who have questions about their benefit suspension applications and the voting process. 

Finally, we would like to express our strong opposition to the request by the Central States plan to permit greater cuts in deferred vested participants than in others and to speed up the implementation process. Many participants left their plans involuntarily when their companies shut down. They should not be penalized for this. And it is important that participants be given more time, not less in the voting process.

Thank you. I’m happy to answer any questions you may have.