DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

November 3, 2016 

Board of Trustees, Ironworkers Local 16 Pension Fund 

8600 LaSalle Road, Oxford Building, Suite 624 

Towson, MD 21286 

Dear Mr. Martorana, Mr. McKeogh, Mr. Vaynblat, and the Board ofTrustees: 

On March 26, 2016, you submitted an application to the Secretary of the Treasury (Secretary or 

Treasury) on behalf of the Board of Trustees of the Ironworkers Local 16 Pension Fund (Fund, 

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

the Multiemployer Pension Reform Act of2014 (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. 1 The 

Act requires, among other things, that the Application demonsh·ate that the froposed benefit 

suspensions are reasonably estimated to allow the plan to avoid insolvency. Treasury cmmot 

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

reasonably ensure the plan's long-term solvency. As described farther 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 fails 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. § 1085(e)(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. 

§ l085(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 mortality and the hours of service assumptions 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) of the 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 that Suspension Be Reasonably Estimated to Avoid I11solve11cy 

Section 432(e)(9)(D) of the 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 

balm1ce is projected fo1ward 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 the applicant generally must demonstrate that it satisfies this requirement is at 

least 30 years. 

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.4 In 

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

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

principal professional standards that apply to the actuarial profession. 

The ASOPs require that historical and current demographic 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 actuary also 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. In addition, the ASOPs and regulations require that each of the 

3 Code§ 432(e)(9)(G)(i). 

4 26 C.F.R. § 1.432( e )(9)-1( d)(5)(iv)(B). 

2 
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. 

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

Application - the mortality and mmiality improvement assumptions and the assumptions about 

hours of service - are not reasonable. 

The Mortality and Mortality Improvement Assumptions Are Not Reasonable 

The mortality and mortality improvement assumptions used in the Application are not reasonable 

because they: 

• do not take irlto account relevant historical and current demographic data; 

• have a significant bias in that they overestimate the rate at which Plan participants and 

beneficiaries will die; and 

• are not appropriate for the purpose of the intended measurement (that is, cash flow 

projections to demonstrate solvency under Kline-Miller). 

The lvfortality Assumptions Do Not Take Into Account Relevant Historical and Current 

Demographic Data 

The Application uses a mortality table, the 1983 Group Annuity Mortality Table (1983 GAM 

Table), that is significantly out of date. The 1983 GAM Table was based on mortality 

experience from the 1960s that was projected to 1983 based on U.S. population data since 1966. 

Mmiality rates have declined significantly since the early 1980s; the Annual Report of the Social 

Security Trustees, for example, notes an approximately 28 percent decline in mortality rates 

between 1985 and 2015. 5 By relying on an outdated mortality table, the Application 

underestimates the foture benefit payments that must be taken into account in projecting cash 

flows. 

Of even greater significance, the Application made no provision for mortality improvement for 

the period from 1983 to the proposed effective date of the suspension, or for the 30-year 

solvency projection period following the effective date of the suspension. In failing to account 

for mortality improvement, the Plan disregarded the mortality improvement scales issued by the 

Society of Actuaries (SOA) to be used with the 1983 GAM Tables, as well as improvement 

scales issued by the SOA for their 2000 and 2014 mortality tables based on anticipated mortality 

improvements in the United States.6 The Plan provided no information or analysis to support its 

5 See Bd. of Trustees, Fed. Old-Age & Survivors Ins. & Disability Ins. Trust Funds, The 2016 Annual Report of the 

Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, H.R. Doc. 

No. 114-145, at 87 tbl.V.Al, available at 1111Jls:liwww.es:i.eov/OACTifRi;\() 16/Jr?O 16.pc[f (showing the death rate 

per 100,000 decreased from 1,081in1985 to 781.4 in 2015). 

6 The SOA is the only professional organization in the United States engaged in actuarial research and education that 

issues mortality tables and m01tality improvement scales for private pension plans. Treasmy has historically relied 

on the mo1tality tables and mortality improvement scales issued by the SOA for pension plan funding and other 

purposes. 

3 
position that there has been no motiality improvement for plan participants since 1983 and that 

there will be no mortality improvement during the 30-year solvency projection period. The 

Plan's failure to justify its position is contrary to the requirements of the ASOPs. 

The Plan has asserted that the 1983 GAM Table is consistent with the higher mortality rates 

experienced by the Plan. In support of this assertion, the Plan provided Treasury with data on 

166 deaths over an eight-year period, with the number of deaths in a year ranging from a low of 

14 to a high of29. However, this limited experience data is not statistically credible for purposes 

of supporting the selection of a non-standard motiality assumption for a plan. For foll statistical 

credibility, the Plan would need to have experienced a substantially greater number of deaths. 

Under a generally accepted approach for determining mortality assumptions for pension plans, 

more than 1,000 deaths would be required to give the plan's experience full statistical 

credibility. Although partial credibility (which would allow a plan to use a blend of a standard 

mortality table and a mortality table reflecting its own experience) can be established with fewer 

than 1,000 deaths, the Plan did not attempt to use partial credibility to justify its mortality 

assumptions. 

For the cash flow projections required under Kline-Miller, demonstrating pmiial credibility 

would generally require a plan to submit an analysis of pension-weighted mortality experience 

for retirees over an applicable experience period; the Plan failed to perform the applicable 

analysis. 

The Jvfortality Assumptions Have a Significant Bias 

The mo1iality and mortality improvement assumptions used in the Application have a significant 

bias. Specifically, the Application significantly underestimates the future benefit payments that 

must be taken into account in projecting cash flow because using the 1983 GAM Table results in 

an overestimate of the rate at which Plan participants and beneficiaries will die. This bias has a 

material effect on the cash flow projections. A recalculation of the effect of the proposed 

suspension on the Plan's projected solvency using modern tables with a modern motiality 

improvement scale (the RP-2014 Mortality Tables for Blue Collar Employees, Healthy 

Annuitants, and Disabled Retirees projected with Scale MP-2015) illustrates this bias, showing 

that the Plan is projected to become insolvent by 2043, with a negative asset balance of$20 

million by 204 7. This would cause the Application to fail the requirement of Code section 

432(e)(9)(D) that the suspension of benefits be at a level that is reasonably estimated to avoid 

insolvency. 

In response to concerns expressed by Treasury regarding the Plan's use of the 1983 GAM Table, 

the Plan asserted that it would continue to avoid insolvency if it used an SOA 2000 mo1iality 

table (the RP-2000 blue collar table) with no projected mortality improvement. However, use of 

the RP-2000 blue collar table with no projected mortality improvement is also an umeasonable 

assumption. The Plan again failed to provide sufficient information or analysis to support its 

position that there has been, and will be, no mortality improvement during the relevant periods. 

4 
To the contrary, the Annual Report of the Social Security Trustees notes an approximately 19 

percent decline in mortality rates between 2000 and 2015. 7 

The Jvfortality Assumptions Are Not Appropriate for the Pwvose of the A1easurement 

While the Plan uses the 1983 GAM Table for purposes of the minimum funding requirements8 (a 

determination of the minimum amount that must be contributed annually to the Plan) and for 

purposes of determining actuarial equivalence among benefit options under the Plan, these are 

very different measurements than the cash flow projections required under Kline-Miller. The 

Kline-Miller cash flow projections require determination of, and are sensitive to, point-in-time 

cash inflows and outflows for the purpose of determining solvency, and under the statute are 

one-time calculations. In contrast, compliance with the minimum funding requirements is an 

amrnal determination that is adjusted from year to year (and variances from the actuarial 

assumptions are reflected in the plan's experienced gains and losses), and determining actuarial 

equivalence between benefit options is a present value calculation that is not sensitive to timing 

of cash inflows and outflows from the plan. 

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. By its 

nature, a cash flow projection is highly sensitive to differences in certain actuarial assumptions, 

and is generally much more sensitive than point-in-time present value calculations, such as a 

plan's determination of the minimum amount that must be contributed annually to the plan. 

Because a mistaken judgment of an element of cash flow can result in a projection of plan 

solvency when a more refined projection would show insolvency, it is critical that factors 

specific to cash flow projections be taken into account. 

In the case of a benefit suspension under Kline-Miller, the following factors are relevant and 

should be taken into account in selecting actuarial assumptions: 

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

is permanent-amounts reduced will not be returned; 

• 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; and 

• the timing of future expected benefit payments and their impact on cash flow at any given 

point during the extended period for projecting insolvency. 

In other words, an applicant selecting actuarial assumptions for purposes of the cash flow 

projections under Kline-Miller must take into account that the assumptions will be used for a 

solvency determination by a pension plan in the context of a potential benefit suspension 

7 See footnote 3 (the table in the repmi also shows the death rate per 100,000 decreased from 960.7 in 2000 to 781.4 

in 2015). 

8 Even for the purpose of determining minimum funding, the Plan is an outlier among plans in using the 1983 GAM 

Table. Of the 29 Iron workers plans with more than 1,000 participants that filed federal information returns for the 

2014 plan year, the Plan was the only one that used the 1983 GAM Table, and the 1983 GAM Table was the most 

outdated table used by any of these plans. 

5 
involving permanent reductions to the benefits of participants that will not be returned or 

automatically self-conected if future experience differs from expected. Because using more 

refined m01tality assumptions in connection with a cash flow projection would produce 

materially different results in these circumstances (as explained above), and would not be unduly 

costly for the Plan,9 the Plan should have chosen a mortality table and improvement scale that 

reflects and gives appropriate weight to relevant and historical demographic data. 

Based on the foregoing, Treasury has determined that the mortality assumptions arc not 

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

requirement that it be reasonably estimated to avoid insolvency. 

The Hours of Service Ass11111ptio11 Is Not Reasonable 

To project cash flows, an applicant must determine the amounts that participating employers are 

expected to contribute to the plan. In the case of a multiemployer plan, these contributions are 

generally a direct function of the number of contribution base units (or CBUs). In this Plan, the 

CBUs are the hours of service performed by members of the Iron Workers Local Union No. 16, 

which is based in Baltimore, Maryland, for paiticipating employers. Currently, employers that 

have entered into a collective bargaining agreement with the Iron Workers Local Union No. 16 

are required to contribute $9.70 to the Plan for each CBU. 

The Application assumes that after many years of decreasing CB Us, including a significant 

acceleration in the rate of such decreases in the last three years, CBUs will be 275,000 for 2016 

and will remain unchanged at that level through 2046. Neither the Application nor 

supplementary information the Plan provided establishes a sufficient basis for this assumption. 

The CBU assumption is not reasonable because it: 

• does not take into account relevant historical and cunent demographic data; and 

• has a significant bias in that it is significantly optimistic with respect to the employer 

contributions during the solvency projection period. 

The Assumption Does Not Take Into Account Relevant Historical and Current Demographic 

Data 

The Plan's assumption that CBUs level offin 2016 and remain constant for the next 30 years 

does not take into account relevant historical and current demographic data. The assumption 

disregards the decrease in CB Us experienced by the Plan over the past 10 years and the 

acceleration of this decline in recent years -a 10 percent decrease in 2014, a 16 percent decrease 

in 2015, and a 19 percent decrease estimated by the Plan trustees for 2016-averaging 15 percent 

per year for the past tln·ee years. Even if the average rate of decrease were lowered to eliminate 

the one-time, recent large decline attributable to the loss of an employer in 2015, the average rate 

of decrease in the past tln·ee years would be 12 percent. 

9 The valuation software used by vhtually all multiemployer plans can easily accommodate the use of a modern 

inortality table and itnproven1ent scale at 1niniinal expense. 

6 
Further, the recent decrease in CBUs has coincided with a period of general economic 

expansion. Between February 2010, when the unemployment rate in Baltimore peaked 

following the most recent recession, and March 2016, when the Application was submitted, the 

unemployment rate in Baltimore dropped from 8.7 percent to 5.3 percent, indicating a favorable 

economic cycle between those dates. The continued decrease in CBUs during much of this 

period, however, indicates that the decline in CB Us is not the result of general economic 

conditions, but rather, at least in part, systemic changes affecting union employment in the 

Baltimore ironwork industry. 

Although the Plan has pointed to two upcoming projects that may provide additional work 

opportunities for union members, it has provided no reliable evidence in the form of signed labor 

agreements or otherwise that the declining trend in CBUs will change. In fact, the Plan observed 

in its Application that there is less work in the industry in the Baltimore region, that employers 

are competing for a dwindling share of that work, and that, in order to increase market share and 

thus CBUs, the union and its signatory employers must capture areas of the market in which they 

do not currently work and that are dominated by non-union contractors that pay lower wages and 

benefits. Significantly, the Plan states in its Application with respect to CB Us that "[t]he hours 

continued to fall through 2015 and are projected to futther decline in 2016 and beyond." This 

statement ("and beyond") contradicts the assumption that CB Us level off in 2016 and remain 

constant thereafter. 

The Assumption Has Significant Bias 

The assumption that the Plan's CBUs will level off at 275,000 hours in 2016 and will remain 

unchanged at that level for the next 30 years results in a material overstatement of the amounts 

that will be contributed to the Plan by participating employers, and therefore demonstrates 

significant optimistic bias. For example, ifthe CBUs were to decline by 12 percent in 2017 and 

2018 before stabilizing at 213,000 hours, the Plan would become insolvent in 2044. Similarly, if 

the rate of decrease in CB Us were 8 percent for the next three years after which CB Us would be 

assumed to remain level at 214,000, the Plan would be projected to become insolvent in 2045. 

Based on the foregoing, Treasury has determined that the hours of service assumption is 

not reasonable and that the proposed suspension does not satisfy the statutory requirement 

that it be reasonably estimated to avoid insolvency. 

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 pmticipants and beneficiaries 

of the outcome of Treasury's review. 

"'.~l-8 Ket teth R. Fernberg 

Sp ial Master 

7