Congressional Leaders Hammer Out Deal to Allow Pension Plans to Cut Retiree Benefits
A measure that would for the first time allow the benefits of current retirees to be severely cut is set to be attached to a massive spending bill, part of an effort to save some of the nation’s most distressed pension plans.
The rule would alter 40 years of federal law and could affect millions of workers, many of them part of a shrinking corps of middle-income employees in businesses such as trucking, construction and supermarkets.
The measure is now before the House Rules Committee and is likely to be moved as an amendment to a massive $1.01 trillion spending bill, perhaps by late Wednesday. It is expected to pass the Senate by Thursday.
If passed, the change would apply to multi-employer pensions, where a group of businesses in the same industry join forces with unions to provide pension coverage for employees. The plans cover some 10 million U.S. workers.
Overall, there are about 1,400 multi-employer plans, many of which remain in good fiscal health and would be untouched by the deal. But several dozen have failed, and several other large ones are staggering toward insolvency.
As many as 200 multiemployer plans covering 1.5 million workers are in danger of running out of money over the next two decades. Half of those are thought to be in such bad shape that they could seek pension reductions for retirees in the near future.
“We have to do something to allow these plans to make the corrections and adjustments they need to keep these plans viable,” said Rep. George Miller (D-Calif.), who along with Rep. John Kline (R-Minn.) led efforts to hammer out a deal.
But the measure in Congress is also outraging retirement security advocates, who argue that allowing cuts to plans paves the way to trims for other retirees later..
“After a lifetime of hard work to earn their pensions, retirees don’t deserve to receive a bad deal, in which they have had no say, cut behind closed doors and secluding the very people who would be impacted the most,” said Joyce Rogers, a senior vice president for AARP, the lobbying giant lobbying group for older Americans in a statement.
The idea of cutting benefits is reluctantly supported by some unions and retirement fund managers who see it as the only way to salvage pensions in plans that are in imminent danger of running out of money.
“This bipartisan agreement gives pension trustees the tools they need to maintain plan solvency, preserves benefits for the long haul, and protects the 10.5 million multiemployer participants,” Randy G. DeFrehne, executive director of the National Coordinating Committee for Multiemployer Plans said in a statement. “With time running out on the retirement security of millions of Americans, moving this bipartisan proposal forward now is not only timely, but necessary.”
But it also has stirred strong opposition from retirees who could face deep pension cuts and from advocates eager to keep retiree pensions sacrosanct, even in cases when funds are in a deep financial hole.
“We thought our pension was secure,” said Whitlow Wyatt, a retired trucker who lives in Washington Court House, a small city in central Ohio. “That was always the word. Now they are changing that.”
Wyatt, 70, retired with a $3,300-a-month pension in 2000 after working more than 33 years as a long-haul driver. He could face pension reductions of 30 percent or more if Congress permits trustees of the hard-pressed pension fund to slash benefits.
The deal is aimed at helping plans such as the Teamsters’ Central States fund.
The pensions earned by truckers in the fund are among the best enjoyed by working-class people anywhere: After 30 years on the road, many of its participants are entitled to upward of $3,000 a month for the rest of their lives.
But now the fund, rocked by steep membership declines, an aging workforce and downturns in the stock market, is in dire financial straits, putting the retirement benefits of 400,000 participants in jeopardy.
In its annual report last month, the Pension Benefit Guaranty Corp., the federal insurance program that backs private-sector pensions, warned that the problems facing multi-employer pensions could cause the safety net that secures them to collapse within the next decade.
If that happens, retirees depending on multi-employer plans for their pensions would receive nothing if their plans failed. (A separate PBGC insurance fund covering single-employer private pensions is in much better financial shape.) Even if the insurance fund survives, maximum coverage for people in multi-employer plans is minimal — about $13,000 a year.
Although it has issued similar alerts in the past, the PBGC’s latest warning seems to have pushed Congress to move from studying a policy change to actively negotiating for one in recent weeks.
The abrupt action has alarmed some pension rights advocates, who are concerned about a decline in retirement security for all Americans. They also worry about a creeping trend toward trimming pensions, citing retirement benefit cuts for government employees in Detroit and elsewhere.
But managers of deeply troubled funds say that absent a federal bailout, which they call politically infeasible, cutting benefits is the only way to save them. Last week, more than 1,300 employers sent letters to members of Congress urging lawmakers to back the proposal to allow benefit cuts.
“The longer we wait to take action, the more severe the impact on retirees and workers in the plans in the worst financial shape will become,” business leaders wrote. “The longer we wait, the heavier the burden will become on employers struggling to fund and extend these pension plans.”
That is the situation confronting the Central States plan, which was notorious in the 1960s and ’70s for being used as a slush fund for organized crime. Since then it has operated under federal court supervision and with the help of professional fund managers. Yet that has not been enough to overcome demographic and other trends that have weakened its finances.
In 1980, the Central States fund had four active participants for every retiree. Now, there are nearly five retirees or inactive members for every worker, because many unionized trucking firms have gone out of business in the decades since deregulation, Thomas C. Nyhan, executive director of Central States, told Congress earlier this year.
The fund has about $18 billion in assets and pays out annual benefits of $2.8 billion to retirees. But it receives just $700 million each year from employers. Even given the strong stock market returns of recent years, that puts the plan on course to run out of money within the next 10 to 15 years, Nyhan has said.
The fund ran into trouble during the dot-com crash of the early 2000s. Also, United Parcel Service, once the largest firm in Central States, paid more than $6 billion to drop out of the fund in 2007. Much of that money was lost when the market tanked in 2008, leaving the fund in perilous condition.
Some see cutting benefits preemptively as the only way to keep troubled plans such as Central States afloat. Under the agreement reached by congressional negotiators, retirees over age 75 as well as those who are disabled would be shielded from any reductions. Also, any benefit cuts would be subject to a vote of plan participants.
Nonetheless, many retirees feel betrayed. “I never dreamed they would pull the rug out from under us,” said Greg Smith, 66, a retired shipping clerk who retired in 2011 with a $3,000-a-month pension after 42 years on the job. “I actually retired because I was worried about them cutting pensions. I thought I would be grandfathered in with protections. But I guess not.”