Southwest Ohio Carpenters Pension Fund Pension Recovery Plan
Frequently Asked Questions
The Board of Trustees has prepared the following Frequently Asked Questions to answer your questions about the Pension Recovery Plan. They are organized by subject.
We will add to this list when we have new information and as we receive more questions from you. We hope you find this helpful.
If you have other questions or want more information, please call the Pension Recovery Plan Call Center at (330) 779-8862.
The Fund's History, Finances & Investments
There are a number of factors, including unpredictable investment returns and a decline in membership which led to a decline in contributions to the Fund.
- Retirees now outnumber active participants by more than two to one. What’s more, they retired earlier and are living longer, resulting in total benefit payments that exceed total contributions. This pattern has led to a decline in Fund assets.
- Shortsighted government regulations prevented the Fund from saving for a rainy day when we had the resources to do so.
- The stock market crash of 2008, the worst since the Great Depression, resulted in losses from which the Fund cannot recover.
- Overall union employment in our industry in the Cincinnati area, is significantly down since 2000. The Recession of 2008 started a new six-year construction slowdown that we are only just now climbing out from. Because of the unprecedented drop in hours worked, employer contributions to the Pension Fund declined.
The two recessions, in 2000 and in 2008, also resulted in a drop in the number of signatory contractors.
The Trustees rely on experienced investment professionals to provide expert advice and recommendations to the Trustees on where to invest the Fund’s assets. These professionals attend each Trustees’ meeting, report on the performance of each investment manager and provide the most-updated market information. Because the Fund is governed by ERISA (the Employee Retirement Income Security Act of 1974), the investments are required by law to be diversified. This means the Fund's money must be invested in a number of different types of investments and it cannot be too concentrated in one investment area.
The actions of all parties responsible for investments are reviewed on a regular basis by outside auditors. Additionally, the Fund is required to file detailed yearly reports (Form 5500) with the Department of Labor. On top of that, an independent, outside audit of all finances is done every year. Finally, the fund is overseen by the US Department of Labor and the Pension Benefits Guaranty Corporation.
The Trustees are not authorized to prevent companies from withdrawing. Companies withdraw because they go non-union, go out of business and/or file for bankruptcy, among other reasons. Unfortunately, many companies recently have decided to withdraw from multiemployer plans like our Plan because they desire to lower their labor/benefits cost. When a company withdraws, the Fund aggressively pursues the collection of withdrawal liability (the employer’s share of the underfunding). The Fund will extend collection efforts to related companies and individual owners to the fullest extent permitted by law.
The Trustees have been working to protect the Fund’s assets by taking actions available under the law for as long as the Fund has been around. Throughout its history, the Fund has been managed well under some very difficult circumstances. The economic crashes, and the depression from 2008 to 2015, were not foreseeable. The Trustees have taken necessary actions to keep the Fund on course based on historical factors and legal regulations. We increased contribution rates and changed benefits when permitted, such as early retirement. Even though the Trustees have tried all available options to address these problems, our Fund is still seriously underfunded and the situation is becoming worse.
MPRA became law in December 2014. MPRA allows trustees of severely underfunded multiemployer pension funds like ours to develop benefit suspension plans (our Pension Recovery Plan) that include benefit reductions for both active workers and retirees, in order to save the funds and enable them to continue paying benefits in the future. The Fund has taken the first opportunity to make these changes. Pension funds across the nation are now submitting similar applications.
Under MPRA, the Fund generally must meet the following criteria:
- The pension fund must be certified to be in Critical and Declining Status by the fund’s actuary. The Fund’s actuary certified that the Fund is in Critical and Declining status starting in 2015. The Fund is projected to run out of available resources in 2036 if the Pension Recovery Plan is not implemented.
- The proposed suspensions must be enough to avoid insolvency, but not more than necessary to prevent insolvency for the foreseeable future.
Once the Board of Trustees finalized the revised Pension Recovery Plan, the Trustees then submitted the application for approval to the U.S. Department of the Treasury on June 29, 2018. The Treasury Department will then approve or reject that application within 225 days after the application is filed (by February 13, 2019). If the Treasury Department approves the application, you will have an opportunity to vote on whether to approve or reject the Pension Recovery Plan. If you vote to accept the Pension Recovery Plan, it will go into effect on April 1, 2019. If you vote to reject the Pension Recovery Plan, it will not go into effect.�
The U.S. Department of the Treasury and Department of Labor together oversee the Pension Benefit Guaranty Corporation (PBGC). MPRA designates the U.S. Department of the Treasury as the sole authority to review and approve or deny all multiemployer pension funds applications to suspend benefits.
Yes. MPRA requires that participants’ benefits not be reduced to less than 110 percent of the amount guaranteed by the PBGC. The current maximum PBGC guaranteed benefit is $35.75 per year of service. For example, a participant who has 30 years of service, the maximum benefit guaranteed by the PBGC would be $12,870 per year. Very few participants will have their benefits under the Pension Recovery Plan reduced to this limit. However, MPRA does not place a limit on the percentage of a participant’s benefit that may be reduced.
MPRA amends portions of ERISA and the Internal Revenue Code and includes, for the first time, rules for reducing previously protected, accrued benefits, including retiree benefits.
Our Proposed Pension Recovery Plan
A benefit suspension is a reduction of any current or future payments from the Fund to any participant or beneficiary. In order for reductions to take place, the Fund has to submit an application (our Pension Recovery Plan) showing that the proposed pension benefit reductions meet the requirements of MPRA, including showing that the reductions are necessary and sufficient to keep the Fund from running out of money in the long run. Additionally, the Fund must show that the proposed benefit reductions do not exceed the amount necessary to keep the Fund solvent. It’s called a “suspension” rather than a “reduction” because it is designed to be temporary. Hopefully, a temporary benefit reduction now will give troubled funds like ours time to recover and, ultimately, restore pensions to their pre-suspension levels.
The Treasury Department will review our submitted Pension Recovery Plan and must provide a response within 225 days from when we submitted our Pension Recovery Plan for review (by February 13, 2019). If the Treasury Department approves the Pension Recovery Plan, you will then have the opportunity to vote on whether the Pension Recovery Plan should be implemented. MPRA requires that the voting process be conducted by an independent party and will generally be completed within 30 days. If you vote to accept the Pension Recovery Plan, it will go into effect on April 1, 2019. If you vote to reject the Pension Recovery Plan, it will not go into effect.
If the Pension Recovery Plan is approved, it is scheduled to go into effect on April 1, 2019.
We have worked very hard to create a series of benefit suspensions that are equitably distributed between all of the groups of participants and beneficiaries in the Pension Fund. MPRA requires that all benefit suspensions are fair, but not necessarily equal. Because of the way the Fund works, the percentage by which benefits will be suspended will differ based on whether a participant is a normal retiree, an early retiree, or an active member.
The Trustees examined many scenarios in making this decision. Over the last several years, they considered many different options. They determined that the Pension Recovery Plan provides the best opportunity for long-term health of the Fund and future benefits for our participants.
Since the 2000 recession, the Fund has repeatedly cut back the benefits received by the members who were active at that time. Because of these cuts, a Fund participant who has accrued benefits can now expect a pension that is around 29% less than a similar person who retired in 2000. For example, a participant with 30 years of service working 1,500 hours a year would have contributed approximately $85,000 over their working years and received a monthly benefit of about $3,130. A similar participant retiring in 2016 would have contributed approximately $153,000 and received a monthly benefit of about $2,210 per month. If the proposed Pension Recovery Plan is approved, active members will share in the suspensions made to benefits.
Today, the Fund is paying out approximately $15.6 million more in retiree benefits a year than it is receiving in employer contributions. That deficit will continue to grow if we don’t take immediate action to fix the problem. The longer we wait, the bigger the benefit reductions will need to be to save the Fund. If the Trustees wait much longer, it will be too late to keep the Fund from becoming insolvent. If that happens, your benefit would be reduced to the amount guaranteed by the PBGC. However, if the PBGC also runs out of money, your benefit could be reduced to almost nothing.
The longer we wait to act, the larger the suspensions will need to be to save the Fund and your pension. In fact, if we delay suspensions much longer, we may not be able to prevent the Fund from becoming insolvent.
No, the law specifically requires that the suspensions have to be enough to keep the Fund solvent.
No. Due to the Fund’s deficit, we do not have enough money to provide lump sum payments to every participant.
If your benefit is reduced by the Pension Recovery Plan, your joint and survivor benefit will be reduced accordingly.
Yes, but it will depend on how the QDRO is structured.
The Pension Recovery Plan is based on many assumptions including hours worked and expected investment return. These assumptions were selected based on the Fund’s recent experience, expected market conditions, Trustee input, and discussions with the Treasury Department and Pension Benefit Guaranty Corporation during the evaluation of the MPRA application last year. MPRA requires that benefit suspension plans must be projected to allow the Fund to continue to be able to pay pensions indefinitely. The Fund’s actuary must certify—and the U.S. Department of the Treasury must agree—that the benefit suspension plan is sustainable before it can be approved and implemented. Once our proposed Pension Recovery Plan is implemented, the Fund’s deficit will begin to decrease, which will eventually allow the Fund to stabilize—and hopefully even grow.
Our goal is to organize aggressively and attempt to increase both overall membership and hours worked. If we are able to accomplish this, the financial outlook for the Fund will improve. If membership grows and hours worked increase, the Trustees’ intend and are required to begin restoring benefits that were suspended.
Any Fund Trustees, Local Union Officers or any other individuals who are participants in this Pension Fund are subject to the same rules for benefit reductions under the proposed Pension Recovery Plan.
Nothing. Under MPRA, participants receiving a disability benefit are protected from reductions under a Pension Recovery Plan. However, if our Pension Recovery Plan is rejected, the Fund becomes insolvent and the PBGC takes it over, all Fund participants, including participants receiving disability benefits, will face pension cuts regardless of age or disability status—and the cuts will be larger than those proposed under our Pension Recovery Plan.
Over the last decade, you have seen your accrual rates reduced and faced many other benefit changes. The Pension Recovery Plan should be the last cut that you face for the foreseeable future. We will all be working hard to increase membership in the Union, participation in the Fund and hours worked by our participants. When that happens, we will be able to make improvements to the Pension Fund and restore the cuts.
The rules are set by law. According to MPRA, retirees over age 80 on the date that the proposed Pension Recovery Plan goes into effect are not subject to cuts. Retirees between 75 and 80 are subject to a sliding scale of reductions based on their age at the time the MPRA suspensions take effect.
While you are exempt from the suspensions under our Pension Recovery Plan, you are not exempt from cuts that would be imposed by the PBGC. If our Pension Recovery Plan is not approved and the Pension Fund becomes insolvent, the PBGC will cut everyone’s pensions across the board—including yours. What’s more, the cuts will be much larger than the suspensions called for by our Pension Recovery Plan and the cuts will hit everyone regardless of age or disability status. Further, if the PBGC itself becomes insolvent, your pension could be reduced to almost nothing.
No. The age protections are based on your age on the date that the suspensions become effective. If you are 75 or older on the date when they take effect, the age protections will apply to you. Otherwise, they will not. Your reduction at that time will remain at that rate for as long as you continue collecting a pension, per the rules established under MPRA.
We designed the Pension Recovery Plan to be a one-time fix for our Fund. However, we cannot make a guarantee because the Fund is still subject to a variety of external factors that are completely outside our control and which change over time, such as the state of the economy, government regulation, and investment returns. The Trustees took these factors into account as we developed the proposed Pension Recovery Plan, but we cannot guarantee that the reasonable assumptions we make now will not be affected by future events. The two factors that we can control are the number of participants in the Fund and the hours worked by those participants. If we actively and aggressively organize carpenters in the Cincinnati and Dayton areas, the result will be an increase in Fund funding that will assist the Fund in reaching firmer financial footing sooner.
Yes. The benefit suspensions can begin to be restored once the Fund’s overall funding improves. In order for this to happen, membership and hours worked both need to increase.
Yes. Your pension is being treated like any other vested benefit. You are facing the same cuts that active participants will face. If the Pension Recovery Plan is rejected and the Fund becomes insolvent, you will suffer much larger cuts.
Withdrawal and Re-Filing of the Pension Recovery Plan Application
The Pension Recovery Plan was initially submitted March 30, 2017. The Pension Recovery Plan was thoroughly examined by representatives from the Treasury Department and the Pension Benefit Guaranty Corporation. The Treasury Department and Pension Benefit Guaranty Corporation suggested some changes to the Pension Recovery Plan and its underlying assumptions to improve its likelihood of approval. These suggested changes included:
- A more optimistic and extended assumption for the future investment returns of the Plan; and
- The use of credited service instead of vesting service in calculating the PBGC minimum guaranteed benefit necessary for applying the MPRA limitation that no individual's benefit may be reduced below 110% of the PBGC minimum guaranteed benefit.
The Board of Trustees considered the request and voluntarily withdrew the prior Pension Recovery Plan application October 12, 2017 to make the suggested changes and re-submit at a later date.
The reduction for the second step (a uniform 8% reduction of the monthly benefit of every participant and beneficiary) of the proposed reduction is less in this Application as compared to last year's Application (a uniform 17% reduction of the monthly benefit of every participant and beneficiary).
As detailed in the answer to Question #34, the changes made to the prior Pension Recovery Plan, primarily the use of a more optimistic future return on investments of the Plan, have a significant impact on the Pension Recovery Plan. The use of different assumptions has resulted in a smaller reduction in the second step of the benefit reduction formula.
The Treasury Department must approve the assumptions utilized by any application for suspension of benefits under MPRA. The Pension Recovery Plan cannot use too optimistic or too conservative assumptions and still gain approval from the Treasury Department. The revised assumptions were adopted after consultation with the Treasury Department and Pension Benefit Guarantee Corporation during the review of the initial Pension Recovery Plan submitted last year.
Pension Recovery Plan Application and Voting Process
All Fund participants can vote on the Pension Recovery Plan once it is approved by the Treasury Department. Fund participants means active members, retirees, terminated vested participants and surviving beneficiaries.
If the Treasury Department rejects the Pension Recovery Plan, there will be no vote and the Pension Recovery Plan will not go into effect. At that point, the Board of Trustees has two options for the Pension Fund. Either our Pension Fund will go insolvent and be turned over to the PBGC in the next 18 years, or our Pension Recovery Plan can be amended and re-submitted to the Treasury Department. Under both options, the cuts would be larger than those proposed in our current Pension Recovery Plan.
The Treasury Department has sole responsibility for the voting process. The 21-day election period must take place within 30 days of approval of the Pension Recovery plan, according to MPRA. That means the election could be held in February of 2019, depending on how long the Treasury Department takes to approve our application. The election will be held through an online ballot, mail-in ballot or over the phone, and it will be conducted by a Treasury Department-selected third-party administrator. All Fund participants can vote on the Pension Recovery Plan, including active members, retirees, terminated vested participants and surviving beneficiaries.
MPRA requires that our Pension Recovery Plan first be approved by the Treasury Department. Then the Pension Recovery Plan must be voted on by Fund participants before it can be implemented.
Pension Benefit Guaranty Corporation
The PBGC is a federal agency that was created to insure pensions and cover payments in the event that a pension fund runs out of money. When the PBGC assumes pension payments, payments are automatically cut to mandated levels. With many pension funds currently in trouble and projected to become insolvent, the PBGC itself is projected to become insolvent by 2025. If that happens, pension benefits for funds administered by the PBGC would be reduced to almost nothing.
No, the PBGC will not make up for any of the benefit reductions. The PBGC only gets involved if the Fund becomes insolvent.
The Trustees will comply with any future laws and regulations that govern our Fund, and we will review any future legislation that could potentially address the Fund’s solvency problems. In the meantime, we cannot wait on Congress to act. If we do not address our Fund’s issues now, the Fund will become insolvent.
If you have elected a fixed dollar amount of withholding, you may want to consider reducing the amount withheld for taxes. If you have taxes withheld as a percentage or based on normal withholding, once the benefit is reduced, the amount of taxes withheld will be reduced automatically.
The Pension Recovery Plan only affects Pension Benefits. The Pension Recovery Plan does not impact the health plan or any other aspect of your benefits.
Please contact the Fund Office by using the contact information at the bottom of your statement to review your calculation. By law, appeals related to the Pension Recovery Plan cannot be filed or considered until after the Treasury Department approves the plan. If you feel like there is a problem with the calculation of your benefit on the statement before the application of the Pension Recovery Plan you should contact the Fund Office to review your calculation.
You can contact the Fund Office by phone for more information. You can reach the call center at 330-779-8862 between the hours of 7:30 am - 4:30 pm, Monday - Friday. When you call, select option #3.