First Partition Plan Approved by the PBGC
The United Furniture Workers Pension Fund A is the second pension plan to receive Treasury Department approval to begin reducing participants’ benefits and the first to receive Pension Benefit Guaranty Corporation (PBGC) approval to partition the plan into two separate plans under the Multiemployer Pension Reform Act (MPRA).
The MPRA permits pension plans that are at high risk of insolvency to reduce benefits owed to participants. The arrangement was voted on and approved by plan participants.
Partition allows a plan to split into two separate plans—the original plan and a successor plan—with each plan responsible for a portion of the benefits. The PBGC will then provide financial assistance to pay the successor plan benefits. If a plan can avoid insolvency with only benefit suspension, partition is unnecessary. However, if a plan needs financial assistance from the PBGC to remain solvent, the plan can apply to both the Treasury Department for benefit suspension and the PBGC for partition.
A participant may have benefits under one or both of the plans, but where a participant’s benefits are located does not affect the benefit amount. Only approximately 30% of the United Furniture Workers Pension Fund A’s participants will receive cuts, with approximately 6% experiencing cuts of more than 10%.
Trustees can now look to the United Furniture Workers Pension Fund A benefit reduction application and partition application as guidance to improve their own applications to the Treasury and PBGC.