Congress Allows Pension Cuts For Current Retirees
A provision in the recently passed spending bill will allow some underfunded multi-employer pension plans to cut benefits for current retirees.
“The move was the result of an alarm from the Pension Benefit Guaranty Corp. (PBGC) that multi-employer plans covering more than 1 million participants are substantially underfunded and, without legislative changes, will probably fail,” Washington Post business columnist Michelle Singletary wrote.
Under the law, “plans that estimate they won’t have enough money to pay 100 percent of benefits within 15 or 20 years can cut benefits,” but not for retirees who are 80 or older, or those who are on disability. Cuts would also be phased in gradually, so retirees between the ages of 75 and 79 would face smaller cuts than those under 75.
Some retirees may not even know their benefits on their chopping block because they may have overlooked letters informing them that their plan is underfunded. (RELATED: US Workers Living Longer is Bad News for their Pension Funds)
“Participants would have to be given the right to vote on cuts before the benefit reductions could be implemented,” claims the website Business Insurance, but “the U.S. Treasury Department could override the vote” if the plan in question is deemed “systemically important” to the health of the PBGC.
The changes were agreed upon “after numerous warnings that lawmakers needed to act to prevent the collapse of the PBGC insurance program,” which had seen a massive increase in its deficit, “to $42.4 billion in fiscal 2014 from $8.3 billion the prior year.” (RELATED: Democrat Ticked Off Unions in Major Pension Reform, Which Could Cost Her Governor’s Seat)
“Multi-employer plans are prevalent in industries like mining, manufacturing, and construction where workers often shift among employers,” The Wall Street Journal says, and while they allow workers to keep their pension benefits when changing jobs, they also require the support of multiple businesses.
“In 2006 Congress passed the Pension Protection Act to prop up insolvent multi-employer pensions,” requiring trustees to restore solvency to severely underfunded pensions by “raising employer contributions, cutting so-called adjustable benefits like early retirement subsidies,” or reducing future benefits.
The PBGC is viewed as a “federal backstop when plans become insolvent,” reducing the incentive to make those difficult choices, and increasing the likelihood that taxpayers would eventually have to bail out struggling pensions. (RELATED: Unions Try to Replace San Jose Mayor over Pension Reform)
Multi-employer aren’t paying the PBGC enough to keep up with expenses, leading the agency to warn that benefits could be eliminated entirely if it runs out of money.
Employers and unions have long opposed increased premiums, assuming politicians would not allow significant benefits cuts, but the recent changes leave that in doubt.
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