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Should union pensions be cut?

By Jennie L. Phipps · Bankrate.com
Friday, June 6, 2014
Posted: 4 pm ET

Congress is expected soon to consider the recommendations of a coalition of unions, pension administrators and employers supporting tough measures to save its pensions. The National Coordinating Committee on Multiemployer Plans, or NCCMP, offers several solutions to the problem of pension underfunding in its report, "Solutions not bailouts."

One of its solutions calls for drastic cuts to the benefits of current as well as future recipients.

"Find a better solution," says Karen Ferguson, director of the nonprofit Pension Rights Center. She calls the suggested cuts "draconian. ... They are saying to older people with no other resources -- many barely making it already -- 'We’re going to break the promise that you would have a secure lifetime income.' It's unconscionable."

Multiemployer pension plans require companies that employ union workers in a particular industry to contribute to the retirement plans at levels negotiated through union bargaining. When employees retire, they receive benefits from the pooled contributions. Many of the 1,510 active multiemployer old-fashioned, defined benefit pension plans covering about 10 million participants are in good shape. But some of them -- notably, some of the largest -- are deeply troubled. The Pension Rights Center estimates that 150 to 200 plans covering 1.5 million workers could run out of money in the next 20 years, according to information from the Pension Benefit Guaranty Corporation, or PBGC, the quasi-government organization that guarantees private pensions.

One pension fund facing eventual bankruptcy

The Teamsters' Central States Pension Fund is one of the largest multiemployer plans -- and one of the least solvent. The plan covers 212,000 retirees and about 65,000 current workers, and it reportedly has liabilities that are nearly double its assets. If nothing is done, Central States' Executive Director Tom Nyhan told Congress in 2010 that the fund will be bankrupt in "10 to 15 years," a retirement planning disaster.

One solution crafted by NCCMP would cut average current pensions by at least two-thirds, Ferguson says. Her organization has posted two online calculators, and she is urging union members and their families to plug in what they currently are receiving or expect in pension benefits and see what the proposal would do to that number. A second calculator shows what would happen if the PBGC took over. Note that the PBGC guarantees multiemployer pensions at a much lower level than it guarantees single-employer pension plans.

How retiree pensions may look after cutbacks

Monthly Annual
Typical Teamster pension $3,000.00 $36,000.00
Pension after NCCMP* cutbacks $983.13 $11,797.50
Pension if PBGC** takes over $893.75 $10,725.00

*NCCMP = National Coordinating Committee on Multiemployer Plans

**PBGC = Pension Benefits Guaranty Corporation

Source: Pension Rights Center. Calculations assume 25-year work history.

Ferguson's organization supports other changes to the plans to improve their financial stability, including thoroughly analyzing each plan to evaluate exactly how insolvent it is and what can be done to fix that plan specifically. She's in favor of allowing more mergers among plans to cut administrative costs, and also advocates getting rid of the "13th" bonus check, an extra check that retirees get at the end of a year if the pension fund performed better than expected. They date from the time when these plans were overfunded and in some cases are still mandated.

The Pension Rights Center also suggests finding new ways to raise money, including increasing the PBGC's employer premiums and, perhaps, spending tax dollars. In its report, the center writes: "Plans are facing funding stresses in large measure because of the actions of financial institutions that caused the recession. Our country infused money into those institutions. Should consideration be given to assisting troubled pension plans that are facing problems not of their own making?"

Says Ferguson, "These are problems that can be solved over the long term. There are lots of ways to go, but cutting benefits to the already retired shouldn't be one of them."

What do you think? Is it fair to cut pensioners' benefits after they've already begun receiving them?

Read more about multiemployer plans.

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213 Comments
the tax payer
June 15, 2014 at 11:36 am

You know, they never ever talk about cutting any welfare programs. I think they do just the opposite and just increase them.

Pops07
June 15, 2014 at 11:16 am

Notice that Congress is not touching its own pensions. No one in elective office should draw a pension from the taxpayer. What a bunch of thieves!

rich w
June 15, 2014 at 10:44 am

Public employee retirees are now the (new) target. Millions of dollars from corporate coalitions (e.g. Koch Bros.)spent in a campaign to demonize teachers, police officers, firefighters as the cause of the fiscal problems in every town, municipality and/or city. The truth is, the problem was not the result of the workers failure to contribute. It was caused by the employers/administrators/government officials of these towns, municipalities and/or cities making a deliberate decision to underfund their contributions year after year after year. The law would not let them under fund their pension plans (example: the IMRF.) I personally sat in municipal board meeting and heard the Village President state (in the early 1980's) not to contribute anything that year because the retirement fund had made "so much money in it's investments. Why should we worry about the funding now when it may not be an issue for 20 - 25 years from now." That has been the attitude and now that time has arrived. That fact aside (who's at fault), the problem is real and exists now needing a real solution. But betraying the workers who engaged in good faith negotiations, often giving up raises, benefits and other conditions of employment for the promise of a pension in their retirement is wrong, unjust and frankly illegal. If a solution is going to be found, it should not fall solely on the beneficiaries. It should be negotiated. The workers are tax paying citizens in all these in towns, municipalities and cities. They are your neighbors, friends, teachers, caretakers, safety for your communities in which we all live. Help find a fair solution and stop the demonization of these good people.

James
June 15, 2014 at 9:58 am

While the existing Union work force cannot currently support the number of people collecting pensions, it is also apparent that the mentioned 212,000 number of retirees are being reduced through attrition as they die off. There are many retirees that died well before they collected even what they contributed through payroll deductions. Where did this money go? To eliminate a pension fund because of corporate/union mismanagement is a crime by itself and perpetuates corporate greed through lack of regulation. Let us hold those that created this mess financially responsible to fix it. From my view they certainly can afford it more so than the people they stole from.

James
June 15, 2014 at 9:38 am

To Joan of Snark: Not all the companies paid their contracted amounts. Hostess Brands refused to pay any part of their contracted amounts for years. They chose to file several bankruptcy petitions to avoid financial obligations. The legal and actuarial costs actually exceeded the amount of their financial costs. The advantage for them was to continue operating for seven years while padding the pockets of their executives. This is only one example. Where do you get your information from? Unfortunately there is a lot of misinformation out there that leads to uniformed opinions.

James
June 15, 2014 at 9:25 am

There are a lot of details missing from this story. Many pensions have already been reduced. Congress is behaving like they are subsidizing these pensions and can no longer do so. The easy, quickest, most direct solution is to reduce and eliminate pensions? Imagine the chain reaction to the economy when people are forced out of their homes, and cannot buy food. Increased welfare costs and building additional jails will far exceed any pension subsidy program. This is a disgraceful proposition to solve the much deeper problem of corporate greed.

Mo M
June 15, 2014 at 9:24 am

When Congress cuts their pensions and full health insurance for life, then talk to us.

Joan of Snark
June 15, 2014 at 8:49 am

To francis mcmaster: the companies paid their contracted amounts. What more do you want from them? I suggest you ask your union leadership how they are spending your money.

Joan of Snark
June 15, 2014 at 8:48 am

A closer look into the corruption of union leadership needs to take place along with looking at the plans themselves. Why do union members continue to support the lavish lifestyles of their elected leaders when only they will pay the price for it?

francis mcmaster
June 15, 2014 at 8:45 am

Here's the real story, this is just another attack on unions. Did you see one word about non union pensions. No, because they were mostly executives, how about CEO pensions? No, then support your union, join the retiree's group, talk to other members. These pensions were negotiated and the companies owe every penny!

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