As Congress prepares to finish up the $1.1. trillion spending bill required to keep the government open, a deal that will significantly impact pension plans is coming into focus. If you believe this deal is about ‘saving’ or ‘fixing’ pensions, you haven’t been paying attention.The Congressional proposal would allow plans that are projected to run out of money in the next 10 to 20 years to cut the benefits they pay to both current and future retirees. Provisions include those that would raise premiums, allow troubled pension plans covering more than one employer to cut retiree benefits, allow troubled plans to merge with healthier plans, and double the insurance premiums employers pay the Pension Benefit Guaranty Corporation (PBGC), the government agency that insures pension plans.
How many people could be impacted by legislative changes? According to the Bureau of Labor Statistics, about a quarter of the roughly 40 million workers – primarily in the trucking, manufacturing and other industries – who participate in a traditional defined benefit plans are covered by multiemployer plans. A quick note, A multiemployer plan, sometimes referred to as a ‘Taft-Hardy’ plan, is a collectively bargained plan maintained by more than one employer, usually within the same or related industries, and a labor union. These PBGC insurance programs were created as part of ERISA in 1974 to protect retirees’ pension benefits.
Under the proposal, benefits would not be cut for disabled pensioners or those 80 years and older, while cuts would be lessened for those between 75 and 80. The PBGC projects that more than 10% of the roughly 1,400 multiemployer pension plans, which cover more than 1 million workers and retirees, currently meet this criteria. As the law is currently written, cutting the benefits of those who are already retired is off-limits. Instead, troubled multiemployer plans can take other actions, like reducing the benefits employees earn going forward and raising employee and employer contributions to the plan.
Supporters of the legislation opine that the benefit cuts, along with other changes included in the legislation, will help preserve the plans for both retirees and current workers. Opponents, such as the AARP and the Pension Rights Center, argue that the other measures should be taken before slashing benefits. An example of the potential impact to an individual? An example I have seen, for a retired truck driver that is covered by a multiemployer plan, notes that his pension would go from $40,000 to as low as $15,000.
A plausible case could likely be made that this action is needed now, particularly after the PBGC noted last month that their reserves are running dangerously low and many larger employers have pulled out of the multiemployer plans. However, anyone that has been following the many stories – I have been following the story of Detroit quite closely – detailing the state of both public and private pensions knows that this is just one point on a long arc, one that ends with the demise of public and private pensions.