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Proposed Model Cutback Notice

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The U.S. Department of Labor’s Employee Benefits Security Administration has proposed a model notice [PDF] that will be sent to workers in multiemployer plans whose pensions may be reduced because their pension plan is severely underfunded.

To shore up the health of underfunded pension plans, the Pension Protection Act of 2006 imposed several requirements that underfunded plans must follow. All multiemployer plans must determine their funding status on an annual basis and send a funding notice to workers. Severely underfunded plans which are deemed in critical status, or in the “Red Zone,” must send a special notice telling workers that the plan may restrict or even cutback certain pension benefits.

The Department of Labor’s model notice is designed to give plan administrators sample language they can use to notify workers of the cutbacks that may occur when their multiemployer pension plan becomes severely underfunded. It is vital that these notices clearly explain potential benefit cutbacks to ensure that workers will understand that their pensions may be reduced as a result of the plan’s Red Zone status. The notice must explain that benefit cutbacks will apply to all workers whose first pension payment begins after the date of the notice, even though the cutbacks may not occur until some time in the future.

Below are links to the proposed model notice as well as instructions for submitting your comments. Comments are due April 24, 2008. You should let the Department of Labor know whether you think the model notice sufficiently explains the possibility of benefit cutbacks and if anything could improve the notices to ensure that everyone receiving a notice understands what it means.

Read the full text of the proposed model notice.

Read the Pension Rights comments.

Read a PRC fact sheet to learn more about the benefit cutbacks for multiemployer plans in critical status.

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