Benefits May 24, 2022

PBGC Approves Assistance for Five More Multiemployer Plans in May

Special Financial Assistance program to date has approved more than $6.2 billion to cover nearly 120,000 participants.

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The Pension Benefit Guaranty Corporation has approved applications submitted to the Special Financial Assistance Program by five more struggling multiemployer plans in May alone. The PBGC has now approved more than $6.2 billion in bailout funds to plans covering close to 120,000 workers and retirees.

The PBGC said it will provide $210.4 million in SFA funding to the Local 365 UAW Pension Fund Pension Plan of Englewood Cliffs, New Jersey, which covers 3,736 participants in the manufacturing industry.

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The Local 365 UAW Plan became insolvent in December 2020, at which time the PBGC began providing the plan with financial assistance. As required by law, the plan reduced participants’ benefits to the PBGC guarantee levels, which were approximately 20% below the benefits payable under the terms of the plan.

The $210.4 million will allow the plan to restore all benefit reductions caused by its insolvency, and to make payments to retirees to cover previous benefit reductions.

Additionally, the PBGC’s Multiemployer Insurance Program will be repaid $17.9 million, which is the amount of the plan’s outstanding loans, including interest, for the financial assistance PBGC provided since December 2020.

The PBGC is also giving $118.3 million to the New York City-based Local 805 Pension and Retirement Plan, which covers 2,003 participants in the transportation industry. The Local 805 Plan implemented a benefit suspension under the Multiemployer Pension Reform Act of 2014 on January 1, 2019, and was partitioned into two plans. The MPRA suspension reduced the participants’ benefits earned as of December 31, 2018, by the maximum amount allowed under the MPRA.  The benefits of approximately 1,500 plan participants had been reduced by an average of 41%.

The SFA approval rescinds the partition and will enable the plan to restore all benefits suspended under the terms of the MPRA and to pay retirees to cover prior benefit suspensions. With the approval, the PBGC’s Multiemployer Insurance Program will be repaid the $17.8 million amount of the plan’s outstanding loans, including interest, for the financial assistance PBGC provided since the partition.

Meanwhile, the Mastic, New York-based Management-Labor Pension Plan Local 1730 ILA, also known as the Longshoremen Local 1730 Plan, is set to receive $59.1 million in SFA funding for its 478 participants in the transportation industry.

The Longshoremen Local 1730 became insolvent in November 2020, which is when the PBGC started providing it with financial assistance. The plan had reduced participants’ benefits to the PBGC guarantee levels, which were approximately half of the benefits payable under the terms of the plan. The fund will also repay $2.9 million to the PBGC’s Multiemployer Insurance Program for the financial assistance it has provided since the plan’s insolvency.

And the Iron Workers Local 17 Pension Fund of Cleveland, which covers 1,900 participants in the construction industry, has been approved to receive $48.9 million in bailout funds.  The plan implemented a benefit suspension under the MPRA on February 1, 2017, which affected approximately 950 participants who, on average, saw their benefits cut by 30%.

The PBGC also approved $11.3 million in funding for the Carpenters Industrial Council of Eastern Pennsylvania Pension Plan, which is based in Ashland, Pennsylvania, and covers 242 participants in the construction industry.

The Carpenters Pension Plan has been receiving financial assistance from the PBGC since it became insolvent in October 2017, at which time the plan reduced participants’ benefits to roughly 5% below the benefits payable under the terms of the plan. As a result of the SFA approval, the Multiemployer Insurance Program will be reimbursed the $2.8 million in outstanding loans, including interest, that it had provided the plan since October 2017.

Compliance May 24, 2022

Retirement Bill Eyeing ERISA Arbitration Ban Stirs Strong Reaction

The largest U.S. business lobbyist opposes bill banning discretionary clauses.

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The largest lobbyist in the U.S. is opposed to a bill introduced in Congress that amends the Employee Retirement Income Security Act.

The bill, introduced by Representative Mark DeSaulnier, D-California, and Senator Tina Smith, D-Minnesota, proposes prohibiting arbitration for ERISA claims and banning discretionary clauses. In a comment letter, the U.S. Chamber of Commerce argues that this would limit recovery amounts, increase the costs of claims for benefits and increase the time for courts to resolve claims for benefits.

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The Chamber of Commerce opposes both prongs of the bill: barring participants from bringing class action claims by plan terms and disallowing plan administrators’ application of discretionary clauses. Chantel Sheaks, vice president of retirement policy at the Chamber, says that the lobbyists are concerned the bill would harm employer-sponsored benefit programs, including those providing retirement and health benefits.

Plan sponsors seek to mitigate litigation risk and manage exposure to claims with defensive provisions and discretionary clauses that grant the plan administrator binding authority to interpret claims for relief, make plan determinations and provide deferential review for legal challenges.

“Giving both plans and individuals the choice of whether to arbitrate or go to litigation is very important,” Sheaks says. “We really think that it’s not good public policy just to have a complete ban on arbitration in ERISA cases.”

The Chamber also opposes altering deference to plan sponsors. So-called Firestone deference allows plan sponsors interpretation authority for deference in litigation challenging plan terms, the Supreme Court ruled in Firestone Tire & Rubber Co. v. Bruch. The deference standard is “the core” of the ERISA claim-for-benefits standard and framework, Sheaks says.

Disallowing deference would break the current system because “without it, everything falls apart—for both sides, not just for plans but also for participants,” she says.

The entire administrative and claims procedure would be altered, Sheaks says.

“The people who are pushing it really didn’t realize the effect it could have on the current system that we have—the claims procedures requiring individuals to go through the [process]. It is a check and balance on the administrator—instead of just having people [who] have claims denied go straight to court,” she says.

While the Chamber is opposed to the entire bill, Paragraph E is the “most problematic,” Sheaks adds.

That paragraph states that “no covered provision related to a plan other than a multiemployer plan shall be valid or enforceable that purports to confer discretionary authority to any person with respect to benefit determinations or interpretation of plan language, or to provide a standard of review of such determinations or interpretation by a reviewing court in an action brought under this section that would require anything other than de novo review of such determinations or interpretation.”

Removing these covered provisions could harm plans and participants and overburden the court system, Sheaks says.

Prompting more claims to be heard in court “can get very expensive very quickly, but also take a lot more time,” Sheaks explains.

Arbitrations are resolved, on average, in 659 days compared to 715 days for litigation, according to the Chamber’s comment letter. Sheaks adds that March research cited by the Chamber, from economic consultant NDP Analytics, found that arbitration is often preferable for participant settlement amounts.

“When you look at the average recovery [in courts] per participant it’s actually not that high,” she says.

On average, employees won more money through arbitration—around $444,000—than in court, where they won about $408,000, according to the research. Sheaks expects that, if the bill were passed, for “any ERISA test case, instead of going through the claims procedures that we currently have—if no deference is given—then there’s pretty much no reason to go through the claims procedures,” Sheaks says.

Under existing law, the plan administrator is allowed to interpret the plan, providing a higher bar—the arbitrary and capricious standard—for courts to overturn a plan sponsor’s or plan administrator’s determination for benefits eligibility. An arbitrary and capricious standard of review provides that the plan’s decision only be overturned by the court if it is “without reason, unsupported by substantial evidence or erroneous as a matter of law,” according to the Wagner Law Group ERISA and Employee Benefits Practice.

“That would have precluded plans from giving the plan administrator the deference necessary to get the arbitrary and capricious standard of review in court under Firestone, so it effectively was eliminating Firestone in the court,” Sheaks says.

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