According to a recent report in the Washington Post, a bipartisan group of congressional leaders reached a deal Tuesday evening that would allow – for the first time in history – the benefits of trucking, construction and supermarket retirees to be significantly cut in order to shore up some of the nation’s most severely distressed multi-employer private pension plans. The measure is attached to the current $1.01 trillion spending bill that will allow government to continue past December 11. The legislation, if enacted, would alter 40 years of federal law affecting millions of workers.
Pension advocates oppose the move, which would be unprecedented, say that permitting financially strapped plans to cut retiree benefits would violate the central promise of traditional pensions: that they would provide a defined benefit for life.
Several of the nation’s large multi-employer pension plans are on a course that would leave them insolvent within a decade, according to recent reports. If that occurred, the federal insurance fund that protects the retirement benefits of more than 10 million Americans in multi-employer plans could collapse.
Multi-employer plans are formed by businesses and unions that join forces to provide pension coverage for working-class Americans, from truck drivers to grocery store clerks and construction workers. Their finances have suffered over the past decade in large part because of stock market plunges and a decline in employment and union membership, leaving the plans with a growing proportion of retirees to current workers.
Since 1974, federal law governing the nation’s private-sector pensions has prohibited cuts to the benefits of workers who have already retired — a precedent that is now endangered.
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.
In a proposal made more than a year ago, a coalition of plan trustees and unions said the only way to salvage the most distressed pension plans without a government bailout is to allow them to cut retirement benefits before they run out of money. The reductions would be voted on by the trustees of individual plans, as well as retirees, under proposals being negotiated by lawmakers.
Advocates for the change point out that the plan laid out by the coalition would leave pensioners in distressed plans with more than what they would receive from government pension insurance if their plans failed.
Opponents argue that allowing cuts to plans would open the door to trims for other retirees later. They also accuse Congress of negotiating the deal “behind closed doors.”
Stay tuned as the proposal moves forward in DC.
Source: Washington Post