MPRA – FAQs
Will the Plan Be Reducing Benefits in the Future?
How Does MPRA Impact the Plan?
The new MPRA law created a new status called “Critical and Declining Status” in which the Plan now finds itself. Critical and Declining Status applies to plans that are forecast to become insolvent, or run out of money to pay benefits, within the next 20 years; the Automotive Industries Pension Plan is currently forecast to become insolvent in 2030. In order to help plans in Critical and Declining Status avoid insolvency, the new MPRA law provided additional tools, including benefit reductions for participants and beneficiaries that are currently receiving pension benefits. After thorough research and having taken all reasonable measures to avoid insolvency, the Board may determine it is necessary to use benefit reductions as permitted by MPRA to keep the Plan from insolvency.
How Did the Plan Get Into Financial Trouble?
The Plan’s financial difficulties have primarily been caused by the following factors:
- Loss of contributing employers – The recessions in 2001 and 2008 resulted in the closure of many local automotive dealerships and automotive parts retail shops who were contributing employers to the Plan. This loss of contributing employers led to a decline of the working participant population of 53% over the last 15 years, and an accompanying loss of contributions paid into the Plan. Due to this decline in working participants and the related contribution income, benefit payments to retirees greatly exceed the amount paid into the Plan. Currently, almost $6 goes out to pay benefits to participants for every $1 it receives in contributions.
- Investments – Plan’s investments have not recovered from the market declines of 2000‐ 2002 and the market crash of 2008. The Plan lost 28% of its investment value in the 2008 market crash alone. While Plan investments have performed well in recent years on a percentage basis, those gains were made on a smaller amount of assets and have been insufficient to undo the significant losses since 2000.
What Did the Trustees Do to Help the Plan?
The Board of Trustees has taken a number of steps allowed by the PPA to strengthen the Plan’s financial situation, including:
- Reductions in benefit accrual rate – The Trustees implemented reductions in the benefit accrual rate in 2003, 2005 and 2008.
- Eliminating additional benefits – Under the 2008 Rehabilitation Plan, additional benefits were eliminated, such as subsidized early retirement benefits, disability retirements and the 36 month pre‐retirement death benefit.
- Supplemental contributions on employers – The 2012 update to the Rehabilitation Plan imposed a supplemental contribution on employers, which does not grant additional benefits but instead helps strengthen the Plan’s funding status.
These actions helped, but were unable to completely restore the Plan’s financial situation. Despite these measures, the Plan is currently scheduled to become insolvent, or run out of money to pay benefits, in 2030.
Are There Other Options the Board of Trustees Could Take Instead of Reducing Benefits?
The Board considered other options, such as Pension Benefit Guaranty Corporation (“PBGC”) assistance for Plan Partitions and merging with other pension plans. Unfortunately, the PBGC assistance would have been insufficient to solve the problem, and the Board was unable to locate another pension plan willing to merge with the Plan in its current state.
Reducing the Plan’s administrative expenses would not remedy the Plan’s financial difficulties either. In fact, only a small portion of the Plan’s overall expenses goes towards administrative costs. In 2014, for example, the Board spent over $132 million in benefit payments to participants and $2.4 million in administrative expenses, less than 2% of the amount of benefit payments.
When Would This Benefit Reduction Take Effect?
Can My Benefits Be Affected?
How Much Could My Benefits Be Reduced?
When Will I Know If My Benefits Will Be Affected?
What Would Happen If the Plan Does Not File This MPRA Application or the Treasury Department Denies the MPRA Application?
Will I Have Any Say in This Process?
Yes. While the Board is considering its options for benefit reductions under MPRA, you can submit feedback to the Plan at:
Automotive Industries Pension Trust
MPRA Benefit Reductions
P.O. Box 24323
Oakland, CA 94623
Phone: (800) 201‐8944
If the Board submits to the Department of Treasury an application to allow reduction of benefits, you can comment on the application while the Department of Treasury is reviewing it. Once the benefit reductions are approved by the Department of the Treasury, all participants will be asked to vote on the benefit reductions. This is expected to occur in early 2017.