MPRA AND OUR FUND


MPRA refers to the Kline-Miller Multiemployer Pension Reform Act of 2014.  It provides options to trustees/plan sponsors of severely underfunded multiemployer pension plans to cut pension benefits if the fund meets the criteria of the new “critical and declining” status, created by this law. “Critical and declining” means that a fund is projected to be insolvent within 15-20 years and unable to pay 100% of their benefits unless the benefits are suspended. Trustees also must prove that “all reasonable measures to avoid insolvency have been and continue to be taken.” A plan’s actuarial certification of “critical and declining” does not mean, however, that the Trustees must make an application to the US Department of Treasury—it does not serve as a trigger but instead offers the option of an application for suspended benefits under MPRA.

Who Designs the Cuts?

In our case, the AFM-EPF Trustees and the Plan Actuary do.. They choose how much to cut benefits and how to allocate the cuts (“suspensions”) across the participant groups; but the cuts cannot materially exceed what is required to avoid insolvency. The cuts may apply to both retired and non-retired participants and beneficiaries. Though the law requires that the cuts be equitably distributed among the participant groups, it doesn’t necessarily mean that cuts will be made equally “across the board”.

MPRA requires that a retiree representative be chosen to advocate for interests of the retired and deferred vested participants and beneficiaries of the plan (https://www.irs.gov/irb/2016-20_IRB/ar08.html). That means that a representative is present throughout the suspension approval process and works alongside the Trustees to ensure that everyone who is a participant or beneficiary in the fund has a “voice” and a recognized interest in the process. By law, the plan must provide for the representative’s expenses including reasonable legal and actuarial support, commensurate with the plan’s size and funded status.

The Trustees have the right to appoint a retiree representative from their own pool of Trustees OR from the pool of participants who are already receiving their benefits. That means that “one of our own” could serve in this capacity!

How Much Can They Cut?

The benefits cannot be cut below 110% of the amounts that the Pension Benefit Guaranty Corporation (PBGC) sets. For current maximum guaranteed levels, click here. https://www.pbgc.gov/about/factsheets/page/multi-facts.html

The MPRA minimum guaranteed benefits are 10% more than the PBGC guaranteed levels:
$14,157 for 30 years of service
$9,438 for 20 years of service
$5,357 for 10 years of service
*These numbers are current as of 2017. 

Following are examples of how these cuts could work:
 

Musician at Full Retirement Age:
Age 65, after 38 years of service
MPRA minimum guaranteed benefit of 110% of the PBGC limit
Current AFM-EPF Benefits: $138,000 p/y to $15,572 p/y
***Annual Benefit LOSS is: $122,427, an 89% LOSS (approx.)

The following two examples offer less frightening results but there is no guarantee that the Trustees would choose these less severe options:

Same musician, age 65
MPRA reduction of 30%
Current AFM-EPF Benefits: $138,000 p/y reduced to $96,600 p/y
Annual Benefit LOSS is: $41,400

Same musician, age 65
MPRA reduction of 20%
Current AFM-EPF Benefits: $138,000 p/y reduced to $110,400 p/y
Annual Benefit LOSS is: $27,600

Musician at Early Retirement:
Age 57, after 30 years of service:
MPRA minimum guaranteed benefit of 110% of the PBGC limit
$37,332 p/y to $14,157 p/y
(Full Retirement Age Benefit for this musician would have been $84,720 p/y)
Annual Benefit LOSS is: $23,175, a 62% LOSS (approx.)

Same musician, age 57
MPRA reduction of 30%
$37,332 p/y to $26,132 p/y
Annual Benefit LOSS is: $11,200

Same musician, age 57
MPRA reduction of 20%
$37,332 per year to $29,866 per year
Annual Benefit LOSS is: $7,466

To determine what your MPRA minimum guaranteed benefit would be, click here

There are a few ways that you could be exempt from these potentially drastic cuts:

  • If you are age 80 or over;

  • If you are receiving a disability pension;

  • If you are between 75-79 where smaller cuts are imposed; or

  • If your benefits are already below the legal limit based on the PBGC levels.

    MPRA Timeline

  1. No later than 60 days before the Trustees submit an application to the Treasury, the law requires that they choose a retiree representative to advocate on behalf of all pensioners, current and future.
    (Click here https://www.ifebp.org/inforequest/ifebp/0166851.pdf for an article discussing the role of the retiree representative.)

  2. Following that designation, the Trustees, the retiree representative and the actuary design the cuts and submit the application to the Treasury.

  3. Within 30 days, the application is posted online and is open for comments from any interested parties (can include individuals directly affected by the application, groups like AARP, the Pension Rights Center, etc.)

  4. The Treasury Department has a total of 225 days from the date of application to approve or deny it.

  5. Voting on the proposed benefit reductions is administered within 30 days.

    We Can Vote?

Yes, but don’t be reassured by that. Rejecting an application after the Treasury approves it is almost impossible to achieve. The law requires that more than 50% of all participants of a Fund vote to REJECT the application, otherwise it will be approved. For our Fund, that would mean that more than 25,000 of our roughly 50,000 participants and beneficiaries would have to vote to REJECT it. Also, during the review process, the Treasury Department carries on continuing conversations with the Trustees and other people/groups who submitted comments in order to provide feedback on the application. Even if the application is initially rejected, many Trustees are able to make recommended adjustments to the application and resubmit it within a matter of weeks for approval.

What Does This Mean for Us?

The Trustees and financial professionals engaged by the Fund have been referring to MPRA (December 2016 Trustee letter) or speaking about MPRA in every city they have visited since February 22, 2017. Since we don’t know if an application will be filed sooner than later, we need to prepare ourselves for action now in case sooner is the answer.

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