As a result of the Goldilocks rule (See FAQ 12 for more details.)
, the Trustees do not have much discretion about the total amount
of reductions, but they still have to decide how the reductions will be designed - that is, which benefits are going to be reduced and how.
The Multiemployer Pension Reform Act (MPRA) provides rules that must be followed by all funds filing applications. First, MPRA includes some specific protections that limit benefit reductions for different categories of participants based on age, receipt of a disability pension from the Fund and amount of the benefit. (See FAQs 14-17 for more details.)
MPRA also says that benefit reductions have to be shared equitably. The law provides a list of equitable factors that can be considered by Trustees.
A final decision has not been made on every term of the benefit reduction. The Trustees proposed reduction will protect the $1 benefit multiplier. The Trustees anticipate reducing the four other multipliers by the same flat percentage.
Since January 1, 2010, the benefit multiplier has been set at $1.00 for retirements at age 65, which is the Fund's normal retirement age. Under the anticipated benefit reduction, each of the higher multipliers - those that were in place prior to January 1, 2010 - will be reduced by the same percentage. The age 65 multipliers that will be impacted are shown in the chart below - the percentage reduction will apply to the $4.65, $3.50, $3.25 and $2.00 multipliers, as well as the associated multipliers for participants who have retired or will retire at earlier ages. The $1.00 age-65 multiplier will not be reduced, nor will its associated multipliers for retirement at earlier ages. (See FAQ 3 for an explanation of how the multiplier works, including the formula for how it affects participants' benefits.)
However, benefit reductions must take into account MPRA's protections for age, disability and the maximum benefit reduction (See FAQs 14 - 17 for an explanation of these protections.)
As part of the reduction, the Trustees also expect to propose eliminating some of the Fund's unique benefit features that were instituted when the Fund was in excellent financial condition and could afford them. Eliminating some of these features will allow the Trustees to limit the size of the percentage reduction.
For example, the Trustees anticipate eliminating the subsidized early retirement benefit that participants received if they retired before age 65 prior to June 1, 2010. These retirees did not have their benefits reduced by the full amount necessary to account for the fact that they are being paid for a longer period of time.
The Trustees also anticipate revising the way that "re-retirement" benefits are calculated. These are the additional benefits earned by a participant who retires before age 65 and then continues to earn benefits in the period before he or she reaches age 65.
The benefit reductions that result from eliminating these features must also take into account MPRA's protections for age, disability and the maximum benefit reduction (See FAQs 14 - 17 for an explanation of these protections.)
The Trustees are also considering the inclusion of a maximum percentage benefit reduction, so that no participant can have his or her benefit reduced more than this maximum percentage.
MPRA requires that benefit reductions be based on the Fund's financial condition as of the end of the quarter before the application is filed. Therefore, the Trustees do not - indeed, they cannot - yet know the precise dollar amount of the overall reduction that is needed to protect the Fund's solvency, nor how much any reduction to any individual's pension will be. What we do know is this: Benefit reductions are much preferred to the Fund's running out of money (becoming insolvent).