Saving the Central States Pension Fund largely rests with Congress now that the U.S. Treasury has rejected the fund’s own rescue plan, the head of the fund said Monday.
Thomas Nyhan said the terms of Friday’s rejection mean Central States likely won’t be able to offer another proposed fix without getting funding from Congress, either directly to the fund or through the Pension Benefit Guaranty Corp. that backs fund benefits.
“There are only two solutions. Either the plan receives more money or has to have fewer benefits,” Nyhan said at a session with reporters. “I’m hopeful that come probably 2017, we can actually all get to work on something that can provide a solution.”
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Nyhan, executive director of the fund, called on opponents of the rejected Central States proposal, specifically the International Brotherhood of Teamsters, the Pension Rights Center and AARP, to use their influence on Congress.
“If there is no legislation at any time, we’re going to end up going to insolvency,” Nyhan said.
Kansas City area retired Teamsters and their supporters rallied Monday to celebrate the rejection of Central States’ proposal. Retirees had fought the proposed cuts through a series of protests and rallies, including one on the Capitol lawn in Washington.
Local retirees also have said they remain concerned about their future because of the fund’s problems and what can be done to rescue it. Many say the federal government is at least partly to blame for Central States’ financial woes. They cite deregulation of the trucking industry in the 1980s, federal involvement in the pension fund under a 1982 consent decree and inadequate backing by the Pension Benefit Guaranty Corp.
Central States has said it is $11 billion short of what it needs to cover all 400,000 participants’ current and future benefits. It proposed cuts to current retirees’ monthly checks, many by half or more, under a 2014 law aimed at saving pension funds like Central States that are in critical and declining financial condition.
The U.S. Treasury rejected Central States’ proposal on Friday, saying it failed to meet three important tests of the 2014 law. Central States had warned that a rejection would leave no time for a “do-over” because the fund’s condition worsens each month.
Nyhan on Monday said the Treasury’s reasons for rejection rendered any possible do-over proposal under the 2014 law even less feasible. Specifically, the Treasury rejected the rate of return that Central States expects to earn from its investments as being unreasonably high.
The proposal’s 7.5 percent assumed return on investments is the same rate used in the investment planning at Central States and most other pension funds that cover multiple employers, Nyhan said. A do-over proposal based on the Treasury’s terms would be forced to assume returns closer to 5 percent, he said.
And that, Nyhan said, would force retirees to take “much more severe” cuts than those proposed under the plan that Treasury rejected.
Trustees of Central States are working to determine whether they could submit a second proposal under the 2014 law and meet the terms set in the Treasury’s denial of the first proposal.
Noted mediator Kenneth Feinberg, appointed by the U.S. Treasury to rule on Central State’s proposal, also held that the proposal failed to distribute the benefit cuts equitably and that the average participant likely would not understand notices about the plan they’d received from Central States.
Nyhan said Central States’ surveys of participants showed 75 percent thought the notices were clear and included enough information. He also said the only objection to the equitable distribution of benefit cuts could have been handled easily without rejecting the plan.
Central States had lobbied for financial support from Washington in 2009 and 2010 without success. Nyhan said he hoped upcoming elections and the recent attention to the fund’s problems might lead to a more receptive Congress next year.