1. What is the Kline-Miller Multiemployer Pension Reform Act of 2014?
The Kline-Miller Multiemployer Pension Reform Act of 2014 was enacted on December 16, 2014. In Kline-Miller, Congress established a new process for multiemployer pension plans to propose a temporary or permanent reduction of pension benefits if the plan is projected to run out of money.
In order for the reductions to take place, the plan trustees have to submit an application to the Treasury Department showing that proposed pension benefit reductions are necessary to keep the plan from running out of money. Participants and beneficiaries will be notified of any application to reduce benefits, will be provided with an estimate of the reduction in their own benefits and have the opportunity to comment on the application.
The new law requires that the application be reviewed by the Treasury Department, in consultation with the Pension Benefit Guaranty Corporation (PBGC) and the Department of Labor, to determine if it meets the requirements set by Congress. If the application is approved, plan participants and beneficiaries will then have the right to vote on the proposed benefit reductions before they can occur.
2. What is a multiemployer plan?
A multiemployer plan is a pension plan created through an agreement between two or more employers and a union or unions. The employers are usually in the same or related industries. For example, multiemployer plans provide benefits for people in industries such as transportation, construction, and hospitality. Most multiemployer plans are run by a board of trustees, with an equal number of employer and union trustees.
For additional information about multiemployer plans, see: http://www.pbgc.gov/prac/multiemployer/introduction-to-multiemployer-plans.html; http://www.pbgc.gov/about/factsheets/page/multi-facts.html, and http://www.pbgc.gov/prac/multiemployer/multiemployer-benefit-guarantees.html.
3. How do I know if I’m in a multiemployer plan?
Contact your union or your pension plan directly. Participants and beneficiaries in single-employer plans are not affected by the new law.
4. What kinds of multiemployer plans will be affected by the new law?
Under Kline-Miller, trustees of a multiemployer pension plan that is in “critical and declining status” – meaning it is projected to run out of money in less than 15 years (or 20 years in certain situations) – will have the option to seek a reduction of benefit payments under the plan, if certain requirements are met.
5. How do I know if my pension plan is in “critical and declining status”?
Plan participants who have questions about the status of their multiemployer pension plan should contact their union or their pension plan directly.
6. How will plan participants be impacted?
Plan participants in most multiemployer pension plans will not be impacted because their multiemployer pension plans have enough money to be sustainable over the long term. Plan participants should contact their pension plan to determine if Kline-Miller could impact them.
Multiemployer pension plans can only pursue benefit reductions if the plan is in “critical and declining status.” If a plan applies, plan participants and beneficiaries will be notified of proposed benefit reductions, including an estimate of their reduced benefits, and will have an opportunity to submit comments to the Treasury Department on the application. If that application is approved and other steps are taken (including a vote on the application by participants) then the pension plan trustees can amend the plan to reduce the benefits of workers and retirees in the plan.
It is critical – and the law requires – that the trustees of multiemployer pension plans take all reasonable measures to avoid insolvency before pursuing the benefit reductions that Congress authorized in Kline-Miller.
7. How will participants find out if their benefits are going to be suspended/reduced?
If a multiemployer pension plan applies under Kline-Miller, plan participants and beneficiaries will be notified of the application, including an estimate of their reduced benefits. Shortly after an application is received, it will be posted on the Treasury Department’s website. Plan participants and other interested parties will have the opportunity to comment on the application. The new law requires that the application be reviewed by the Treasury Department, in consultation with PBGC and the Department of Labor, to determine if it meets the requirements set by Congress. If the application meets the requirements of the new law, the Treasury Department must approve the application. If the application is approved, plan participants and beneficiaries will then have the right to vote on the proposed benefit changes before they can occur.
8. Is there a limit on how much an individual’s benefits can be reduced?
Yes. If you are in a plan where benefits could be reduced, Kline-Miller requires that your benefits cannot be reduced to less than 110 percent of the amount that PBGC guarantees. For example, if your plan currently provides a benefit of $1,500 a month, and if PBGC guarantees $1,000 a month, your plan could not reduce your benefit below $1,100, because that is 110 percent of the amount PBGC guarantees in this example. (The amount PBGC guarantees in a given case depends on various factors, including the rate at which your benefit is earned and your years of service under the plan.)
9. Are there certain plan participants who are impacted differently?
Yes. Kline-Miller imposes limitations on the reduction of benefits. In addition to the requirement that benefits cannot be reduced to less than 110 percent of the amount that PBGC guarantees, Kline-Miller specifies that no application may be approved unless it protects participants and beneficiaries in the following ways:
- No benefit reductions for retirees age 80 and above (as of the effective date of the benefit reduction);
- Lower benefit reductions for those aged 75-80; and
- No reductions to benefits based on disability (as defined under the plan).
Benefit reductions must also be distributed equitably over the participant and beneficiary population.
10. What is a benefit suspension?
A benefit suspension is a reduction of any current or future payments from the plan to any participant or beneficiary. Plans may apply for a temporary or permanent reduction of pension benefits. In order for reductions to take place, the plan has to submit an application showing that the proposed pension benefit reductions meet the requirements of Kline-Miller, including showing that the reductions are necessary and sufficient to keep the plan from running out of money in the long run. Additionally, the plan must show that the proposed benefit reductions do not exceed the amount necessary to keep the plan solvent.
11. Do plan participants/beneficiaries have a say in whether benefits are reduced?
Participants and beneficiaries should contact their pension plan with any questions regarding an application to reduce benefits. The plan has the best information about the financial situation of the plan, if the plan is considering a benefit reduction, and how any individual participant/beneficiary will be affected. Large plans (over 10,000 participants) are also required under Kline-Miller to select a participant of the plan to act as a Retiree Representative before submitting an application to reduce benefits. This person’s role is to represent the interests of retirees, deferred vested participants and beneficiaries.
Kline-Miller requires plan trustees to notify participants and beneficiaries of any application to reduce benefits, including an estimate of their reduced benefits. The applications will be posted on the Treasury Department’s website and participants and beneficiaries will have the opportunity to comment publically on the application. Those comments will be taken into consideration by the Treasury when it is reviewing the application.
If the trustees’ application to reduce benefits is approved by the Treasury Department, in consultation with PBGC and the Department of Labor, those participants and beneficiaries have the right to vote on the proposed benefit changes before they occur. A statement from the plan trustees in support of the benefit reductions and a statement, based on public comments, in opposition to the benefit reductions are both required to be included on the ballot that is provided for the vote.
For most multiemployer pension plans, Kline-Miller requires that if the majority of all participants and beneficiaries in the plan vote against benefit reductions, they cannot occur. However, the trustees could submit a new application to reduce benefits and start the process again.
The Treasury Department has published proposed and temporary regulations detailing the application review process, which are currently posted online for public comment.
Different rule for large plans:
There is a different rule for large and financially troubled multiemployer plans (referred to as “systemically important plans”). These are plans that would require PBGC assistance valued at more than $1 billion if the proposed reductions in benefits are not implemented. Even if a majority of the participants and beneficiaries covered by one of these large and financially troubled plans vote against the proposed benefit reductions, the Treasury Department is required by Congress to permit the implementation of such benefit reductions or a modified version of such reductions.
The Treasury Department, in consultation with PBGC and the Department of Labor, is responsible for formulating any modified version of such reductions, taking into account any recommendations submitted to the Treasury Department by the Participant and Plan Sponsor Advocate.
12. How many plan participants/beneficiaries will experience benefit reductions?
We expect that most plan participants and beneficiaries in multiemployer pension plans will not see their benefits reduced.
There are more than 10 million participants in multiemployer pension plans. However, according to PBGC, only about 10 percent of participants are in plans that are projected to run out of money. Moreover, there may be other tools available to these plans to improve their financial condition. By law, plan trustees are required to take all reasonable measures to address their financial problems before submitting an application to reduce benefits.
Even within plans that seek to reduce benefits, some plan participants and beneficiaries, such as retirees who are receiving benefits based on disability and retirees age 80 and above, cannot have their benefits reduced.
13. When will benefit reductions take place?
Benefits cannot be reduced until after the following actions take place:
- A plan must notify participants and beneficiaries of the application for a benefit reduction and provide an individualized estimate of reduced benefits
- Participants and beneficiaries must have an opportunity to comment on the application
- Treasury must review and approve the application
- Participants and beneficiaries must have an opportunity to vote on the proposed benefit reduction
These steps will take some time. Treasury has up to 225 days to approve or deny the application, and, if an application is approved, 30 days to administer a vote. There are other timing considerations in Kline-Miller that may impact when benefits are reduced, including special rules for large and financially troubled multiemployer pension plans
14. How will Treasury review proposed benefit reductions?
All applications will be posted on the Treasury Department’s website and reviewed by Treasury in consultation with PBGC and the Department of Labor. Treasury has also appointed a Special Master to administer the implementation of Kline-Miller, including oversight of the review of applications, and ensure that affected stakeholders have a single point of contact dedicated to this process.
15. My pension plan’s trustees sent me a notice stating that the plan was in “endangered,” “seriously endangered” or “critical” status. Does that mean that they will cut benefits?
Not necessarily. Many plans that are in “endangered” or “critical” status have a path to work their way back to health over time, without reducing benefits. Trustees of “critical” status plans have a limited ability to adjust some benefits, but cannot reduce benefits below the accrued benefit payable at normal retirement age. Benefits that can be reduced under a critical status plan include certain post-retirement death benefits, subsidies that are payable in optional forms of benefit, early retirement subsidies, and benefit increases that were put into place less than 60 months before the plan first entered critical status.
Before there are any additional benefit reductions under Kline-Miller, your plan’s trustees would have to conclude not only that the financial condition of the plan is “critical,” but that the plan is projected to run out of money. This is referred to as being in “critical and declining” status. Further, a plan must have pursued all reasonable measures to avoid insolvency before applying to reduce benefits. Kline-Miller requires that individuals participating in the plan be notified of any application to reduce benefits.