November I 0, 2016 

DEPARTMENT OF THE TREASURY 

W ASH I NGTON, D .C . 20220 

Board of Trustees, Teamsters Local 469 Pension Fund 

3400 Highway 35, Suite 8 

Hazlet, NJ 07730-1247 

Dear Mr. Voelker and the Board of Trustees: 

On March 30, 2016, you submitted an application to the Secretary of the Treasury (Secretary or 

Treasury) on behalf of the Board of Trustees of the Teamsters Local469 Pension Fund (Plan). 

The application you submitted (Application) requests approval to reduce benefits under the 

Multiemployer Pension Reform Act of 2014 (Kline-Miller or Act). 

As Special Master, appointed by the Secretary, I am writing to notify you of Treasury's decision 

to deny the Application because the proposed suspension fails to satisfy the statutory criteria for 

approval. 

In my role as Special Master, I have reviewed the Application under the terms of Kline-Miller, 

its implementing regulations, and other applicable law. I also have reviewed the comments 

received on the Application from organizations and individuals. 

Under the Act, Treasury, in consultation with the Pension Benefit Guaranty Corporation (PBGC) 

and the Secretary of Labor (DOL), must approve an application upon finding that the plan is 

eligible for the benefit suspensions and has satisfied the applicable statutory requirements.' The 

Act requires, among other things, that the Application demonstrate that the ~roposed benefit 

suspensions are reasonably estimated to allow the plan to avoid insolvency. Treasury cannot 

approve an application under Kline-Miller unless the proposed benefit suspensions would 

reasonably ensure the plan's long-term solvency. As described further below, Treasury does not 

find that the Plan's proposed benefit suspensions are reasonably estimated to allow the Plan to 

avoid insolvency. 

Specifically, after reviewing the Application and consulting with PBGC and DOL, Treasury has 

determined that the suspensions described in the Application fail to satisfY the requirement set 

forth in Kline-Miller "that the proposed benefit suspensions, in the aggregate, be reasonably 

estimated to achieve, but not materially exceed, the level that is necessary to avoid insolvency", 

1 Code§ 432(e)(9)(G)(i); 29 U.S.C. § I 085( c)(9)(G)(i). 

2 "Limitations on Suspension-Any suspension of benefits made by a sponsor pursuant to this paragraph shall be 

subject to the following limitations: ... Any suspension of benefits in the aggregate ... shall be reasonably estimated 

to achieve ... the level that is necessary to avoid insolvency .... "Code§ 432(e)(9)(D)(iv); 29 U.S.C. 

§ 1 085(e)(9)(D)(iv). In the interest of simplicity, all citations below to Kline-Miller will refer only to the Internal 

Revenue Code even though Treasury's findings and conclusions have been made under both the Internal Revenue 

Code and the Employee Retirement Income Security Act of 1974, as amended. 
because the zero-takeup assumption regarding spousal survivor benefits and the investment 

retum assumption used for this purpose are not reasonable. Code§ 432(e)(9)(D)(iv). 

Treasury's key findings are described below. 

FINDINGS 

Kline-Miller requires the Secretary of the Treasury to approve, in consultation with PBGC and 

DOL, an application for suspension of benefits "upon finding that the plan is eligible for the 

suspensions and has satisfied the criteria of subparagraphs (C), (D), (E), and ~F)" of section 

432(e)(9) ofthe Internal Revenue Code (Code), as amended by Kline-Miller. The Application 

fails to satisfy the criteria of subparagraph (D)- which requires that benefits be reasonably 

estimated to avoid insolvency-as further described below. 

Requirement tlzat Suspension Be Reasonably Estimated to Avoid Insolvency 

Section 432(e)(9)(D) ofthe Code provides that: 

[a]ny suspensions of benefits under a plan, in the aggregate ... , shall be 

reasonably estimated to achieve, but not materially exceed, the level that is 

necessary to avoid insolvency. 

Pursuant to the regulations implementing this provision, an applicant must use actuarial 

projections to demonstrate that a suspension satisfies this requirement. One type of required 

actuarial projection is a deterministic projection of cash flows, under which the plan's asset 

balance is projected forward using assumptions regarding the amounts of money coming into the 

plan (for example, contributions, withdrawal liability payments, and investment returns) and the 

amounts going out of the plan (for example, benefit payments and administrative expenses). The 

period over which an applicant must demonstrate that it satisfies this requirement is at least 30 

years, and is lengthened for such time as is necessary for the plan to demonstrate that its 

solvency ratio4 and available resources5 do not decline during the last five years of the period. In 

this case, the Plan's period for demonstrating solvency ends in 2060, which results in a 45-year 

solvency projection period. 

The regulations require that each of the actuarial assumptions and methods, as well as the 

combination of actuarial assumptions and methods, used for the required actuarial projections be 

reasonable, taking into account the experience of the plan and reasonable expectations. 6 In 

evaluating whether the assumptions and methods used in the application are reasonable, Treasury 

3 Code§ 432(e)(9)(G)(i). 4 A plan's solvency ratio is defined at§ 1.432(e)(9)-l (d)(5)(ii)(B) as the ratio of the plan's available resources (as 

defined in § 4l8E(b )(3) of the Code) for the plan year to the scheduled benefit payments under the plan for the plan 

year. 

5 A plan's available resources are defined under§ 418E(b)(3) as the plan's cash, marketable assets, contributions, 

withdrawal liability payments, and earnings, less reasonable administrative expenses and amounts owed for such 

plan year to PBGC under section 4261 (b )(2) of ER1SA. 6 26 C.F.R. § 1.432(e)(9)-l(d)(5)(iv)(B). 

2 
has referred to guidance provided by the Actuarial Standards of Practice (ASOPs), which are the 

principal professional standards that apply to the actuarial profession. 7 

The ASOPs require that historical and current demographic and economic data relevant as of the 

measurement date be taken into account in selecting actuarial assumptions and methods, and the 

ASOPs further require that the assumptions have no significant bias. The ASOPs and 

regulations also require that each of the assumptions or methods be appropriate for the purposes 

of the measurement (which means, among other things, that factors specific to the measurement 

must be taken into account). In this case, the measurements are the cash flow projections that are 

required under Kline-Miller. In addition, the actuary must consider the materiality of the 

assumptions and the balance between the benefits of using refined assumptions (that is, 

assumptions that are based upon more extensive and specific study and research) and the cost of 

using those refinements. 

Treasury has concluded that two of the assumptions used for the actuarial projections in the 

Application- the assumption regarding the election of spousal survivor benefits and the 

investment return assumption-are not reasonable. 

Tile Plan's Zero-Take up Assumption Regarding Spousal Survivor Benefits Is Not Reasonable 

Under the terms of the Plan and applicable law, benefits to an unmarried participant must be paid 

in the form of a life annuity (sometimes referred to as a single-life annuity), and benefits to a 

married participant must be paid in the form of a joint-and-survivor annuity, unless these default 

forms of benefit are waived. A single-life annuity provides a monthly payment to the participant 

for his or her lifetime; a joint-and-survivor annuity pays a monthly benefit to the participant for 

his or her lifetime and then pays a continuing benefit to the participant's surviving spouse for the 

remainder of the spouse's lifetime. 

In the case of a joint-and-survivor annuity, the monthly amount paid to the participant may be 

actuarially reduced to fully account for the additional amount that is expected to be paid to the 

participant's surviving spouse, such that the value of the joint-and-survivor annuity is equal to 

the value of the single-life annuity that the participant would be entitled to receive if he or she 

were unmarried. Alternatively, the monthly amount paid to a participant under a joint-andsurvivor annuity may be reduced by a lesser amount (or not at all), such that the value ofthe 

joint-and-survivor annuity is greater than the value of the single-life annuity. Ifthe value of the 

joint-and-survivor annuity is greater than the value of the single-life annuity, the joint-andsurvivor annuity is said to be subsidized. The joint-and-survivor annuity under the Local469 

Plan is slightly subsidized. 

In the case of a manied participant, the participant may waive the joint-and-survivor benefit (and 

receive a different form of benefit, such as a single life annuity) only if the participant's spouse 

consents to the alternative form of payment. The consent ofthe spouse must be in writing and 

must be witnessed. Because these requirements must be satisfied in order to opt out of the 

default, and in view of the protection offered by a survivor benefit paying lifetime benefits to the 

7 In this case, the relevant ASOPs are primarily ASOP numbers 4, 27, and 35. 

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participant's spouse if the spouse survives the participant, most married plan participants receive 

their benefits in the form ofajoint-and-survivor annuity. The Plan's own experience is that over 

70 percent of participants receive a joint-and-survivor annuity. 

In its Application, the Plan assumes that 80 percent of all participants who have not commenced 

their benefits are married, and its cash flow projections reflect the further assumption that 100 

percent of the married patiicipants will choose to waive their subsidized joint-and-survivor 

annuities and receive less valuable single-life annuities. This assumption is not reasonable 

because it: 

1. does not adequately take into account relevant historic and current demographic data; 

2. has a significant bias; and 

3. is not appropriate for the purpose of the measurement (the cash flow projections relating 

to proposed benefit suspensions under Kline-Miller). 

The Application's Zero-Takeup Assumption Fails to Take into Account Relevant Current and 

Historical Demographic Data 

As noted above, the Application assumes that 80 percent of participants who have not 

commenced their benefits are married. However, the projections in the Application also reflect 

an assumption that none of these patiicipants will receive a joint-and-survivor annuity. This 

zero-takeup assumption-that every one of the married participants and their spouses will elect 

against the default and decline the joint and survivor annuity-is contradicted by the common 

experience in pension plans, as noted, including this Plan's own experience that over 70 percent 

ofpatiicipants receive a joint-and-survivor annuity. Moreover, there is reason to believe that the 

take up rate for joint-and-survivor annuities would be even higher if the proposed suspension 

were approved. 

The Zero-Takeup Assumption Regarding Spousal Survivor Benefits Has a Significant Bias 

The Application's assumption in the cash flow projections regarding the election of survivor 

benefits has a significant bias because it has the effect of underestimating the amounts that the 

Plan will pay to patiicipants and beneficiaries. By assuming that all benefits will be paid in the 

fonn of single-life annuities, the Plan ignores the additional cost associated with paying the 

joint-and-survivor annuities (which, as noted, are subsidized). When the Plan recalculated its 

8 Under Kline-Miller, benefits to a participant or beneficiary cannot be reduced to less than II 0 percent of the 

benefit amount that is guaranteed by the PBGC. Further, under PBGC rules, the PBGC guarantees the same 

monthly amount for a participant whether the participant's benefit is paid in the form of a single-life annuity or a 

joint-and-survivor annuity. As a result, joint-and-survivor annuity benefits are relatively more protected than singlelife annuity benefits under a suspension because the monthly joint-and-survivor payments are already lower to begin 

with, meaning that the size of a cut in monthly joint-and-survivor annuity benefits will be less than the size of a cut 

in monthly single-life annuity benefits. (For example, if before a suspension a single-life annuity would pay $1,500 

a month, ajoint-and-sW"vivor annuity would pay $1,400, and the 110-percent PBGC guarantee is $1,200 a month, 

then the reduction of benefits under the suspension could be up to $300 a month if the participant were to elect a 

single-life annuity, but could only be up to $200 a month if the participant were to take a joint-and-survivor annuity; 

the cuts to ajoint-and-survivor benefit would be up to $100 a month Jess than the cuts to a single-life annuity 

benefit.) Thus, participants would benefit more from the Kline-Miller PBGC-based limitation by taking a jointand-survivor annuity and would therefore be more likely to take a distribution in that form. 

4 
solvency projection assuming that 80 percent of participants elect a joint-and-survivor annuitya reasonable assumption given the Plan's experience and the likely possibility that more 

participants would choose to take joint-and-survivor annuities-the Plan was projected to 

become insolvent within the solvency projection period. 

The Zero-Takeup Assumption Regarding Spousal Survivor Benefits Is Not Appropriate for the 

Purpose of the Measurement 

In evaluating whether actuarial assumptions are appropriate for the purpose of a measurement, 

the ASOPs provide that factors specific to the measurement must be taken into account. As 

noted above, in this case the purpose of the measurement is a cash flow projection to 

demonstrate that a proposed benefit suspension under Kline-Miller is reasonably estimated to 

achieve, but not materially exceed, the level that is necessary for the Plan to avoid insolvency. 

Accordingly, the following factors are relevant to this cash flow projection and should be taken 

into account in selecting an assumption about participant election of survivor benefits: 

• that a participant's or beneficiary's loss of benefits (once reduced pursuant to a suspension) 

is permanent- amounts reduced will not be returned; and 

• that the amount of the suspension cannot easily be (and will not automatically be) increased 

or decreased in a later year if the plan's actual experience proves to be different than 

projected. 

These factors indicate the serious and significant impact of the benefit suspension on participants 

and beneficiaries. Given this impact, the Plan should have used more refined assumptions 

regarding the election of spousal survivor benefits because those refinements would have 

produced materially different results and would not have been costly for the Plan to develop or 

implement. 

Based on the foregoing, Treasury has determined that the assumption regarding the 

election of survivor benefits by participants is not reasonable, and therefore the proposed 

suspension does not satisfy the statutory requirement that it be reasonably estimated to 

avoid insolvency. 

The Investment Return Assumptions Are Not Reasonable 

The Application uses a 7.25 percent annual investment rate of return assumption for the entire 

45-year solvency projection period. This assumption is not reasonable because it: 

1. does not adequately take into account relevant cunent economic data (that is, appropriate 

investment forecast data); 

2. has a significant bias in that it is significantly optimistic; 

3. is not appropriate for the purpose of the measurement (cash flow projections relating to 

proposed benefit suspensions under Kline-Miller), taking into account the Plan's negative 

cash flows and other factors. 

5 
The Investment Return Assumptions Do Not Take into Account Relevant Current Economic Data 

The investment return assumptions used in the Application do not adequately take into account 

relevant current economic data. Relevant current economic data (including near-term current 

investment forecast data for each asset class in which the Plan is projected to make investments) 

must be reviewed to detetmine whether refined investment return assumptions would be 

expected to produce materially different results. 

A review of relevant current economic data clearly demonstrates that refined investment return 

assumptions that take into account appropriate investment forecast data regarding expected nearterm rates of return would be expected to produce materially different results. Treasury used the 

2015 Survey of Capital Market Assumptions, developed by Horizon Actuarial Services, as a 

source of relevant current economic data.9 The 2015 Horizon Survey is an annual report 

aggregating the investment forecasts of 29 investment advisors that is widely used in evaluating 

the capital market assumptions utilized by multiemployer defined benefit plans. Applying the 

Horizon Survey's results to the plan's target portfolio, 6.53 percent is the average expected 

geometric return over the next 10 years, compared to the Plan's assumption of7.25 percent. The 

Plan's assumption of7.25 percent exceeds the Horizon Survey's 75th percentile rate of return 

over the next 1 0 years, which is 7.1 7 percent. 10 

The Investment Return Assumptions Have Significant Bias 

The investment return assumptions used in the Application do not satisfy the requirement that 

assumptions have no bias outside of narrowly specified circumstances. The assumptions are 

significantly optimistic, as evidenced by the available relevant investment return forecast data in 

the Horizon Survey described above, and the assumptions have a material effect on the actuarial 

projections in the Application. For example, even reducing the Plan's assumed investment 

return for only the first three years of the solvency projection period (20 16, 201 7, and 20 18) to 

the 6.53 percent expected under the Horizon Survey and maintaining the Plan's assumed 7.25 

percent investment return for the remaining 42 years would cause the Plan to become insolvent 

during the solvency projection period. Similarly, if the 6.53 percent rate of return were assumed 

for the first 10 years, it would be necessary to assume an 8.65 percent rate of return for the 

following 35 years in order for the Plan to avoid insolvency prior to the end of the solvency 

projection period in 2060; an 8.65 percent rate of return exceeds the 75th percentile return for 

years 11 through 45 produced by applying the Horizon Survey results. 

The Investment Return Assumptions Are Not Appropriate for the Purpose of the Measurement 

To be appropriate for the purpose of the measurement, investment return assumptions, like 

demographic assumptions, must be selected in a manner that takes into account factors specific 

to the measurement. In addition to the factors described above for selecting assumptions relating 

to the election of survivor benefits (which indicate that more refined assumptions should have 

been used given the serious and significant impact of the benefit suspensions on participants and 

beneficiaries), the Plan should have taken into account the greater impact of asset returns during 

9 At the time the Application was submitted, the most recent survey data available was the 2015 Horizon Survey. 

10The average rates of return for the portfolio in this paragraph are geometric averages (used as the basis for the 

assumption for the deterministic projections). 

6 
the earlier years of the cash flow projections when selecting an investment return assumption. 

Asset returns during the early years have a greater impact on the Plan's cash flow projections 

because the Plan is projected to have more assets during the earlier years of the projections than 

during the later years (which is always the case for a plan with dwindling assets that is projected 

to become insolvent in the near term); the same percentage gain or loss has a greater impact if it 

occurs when asset levels are higher, which is the case in the early years, than when asset levels 

are lower, which is the case in the later years. 

Based on these factors, the investment return assumptions for purposes of the cash flow 

projections in the Application must be developed in a refined manner that reflects and gives 

appropriate weight to near-term expected rates of return. For this purpose, it is not appropriate to 

develop investment return assumptions based solely on the time-weighted average expected 

returns over the long term or based on the assumptions used for other purposes (such as for 

purposes of determining a plan's minimum funding requirement) because doing so produces 

materially different results than use of a refined assumption selected in a manner that takes into 

account the purposes of this measurement. 

Based on the foregoing, Treasury has determined that the investment return assumptions 

are not reasonable, and therefore the proposed suspension does not satisfy the statutory 

requirement that it be reasonably estimated to avoid insolvency. 

Additional Concerns with tlte Application 

The Application also included the following assumptions and methods that may not be 

reasonable for the purpose of the measurement but that are unlikely to have a material impact on 

the outcome of the cash flow projections: 

• The assumption that active pruticipants who become disabled will wait until age 65 to 

commence benefits. The most reasonable assumption is that disabled participants who are no 

longer earning wages and are likely to have a shorter life expectancy would commence 

benefits when they are eligible to do so. 

• The assumption that all participants who are past normal retirement age but have not yet 

retired will retire immediately. 

• For participants who are likely to retire when they first become eligible for an unreduced 

early retirement benefit upon completing 30 years of service, the assumption that benefit 

commencement will begin on the 30th anniversary of plan participation, which does not take 

into account that some patticipants may have partial years of service and thus their eligibility 

for this benefit would be delayed. 

• The assumption that the m01tality rates of plan participants are those of a person two years 

older than the patticipant's actual age (i.e., ages are set forward two years). 

• The projections did not take into account the proposed suspension of accruals earned during 

2015. 

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CONCLUSION 

The Application fails to meet the requirements of Kline-Miller for the reasons described above. 

This notification letter will be made public in order to inform plan participants and beneficiaries 

ofthe outcome ofTreasury's review. 

K lUleth R. Feinberg 

Special Master 

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