It hasn’t received much attention, but lawmakers tucked inside the mammoth nine-month spending bill Congress approved last weekend an agreement to give unions and management more flexibility in dealing with severely underfunded multiemployer pension plans. The real headline here: Existing pension benefits can now be cut to save the plans that are in the worst shape.
Multiemployer plans offer benefits to more than 10 million union members. They provide retirement security even though workers may move from one job to another within their trade. Multiemployer pension plans are generally maintained by several employers within a particular industry as well as a labor union.
President Obama this week signed the bill, first introduced as amendments by Reps. John Kline (R-Minn.) and George Miller (D-Calif.). It incorporated a nearly 3-year-old plan put together by the the National Coordinating Committee for Multiemployer Plans, a coalition of unions and management that pledged to craft a solution to fix the most troubled pensions in the system without seeking tax dollars. The plan, known as “Solutions, Not Bailouts,” had input and approval from about 40 affected organizations nationwide.
Implementing this plan required congressional approval because it ran afoul of pension regulations put in place nearly 40 years ago under the Employee Retirement Income Security Act, or ERISA.
The plan makes these and other controversial changes:
- The Pension Benefit Guaranty Corp. or PBGC, the federal private pension backstop, won the authority to facilitate the merger of two or more multiemployer plans if insolvency is likely and a merger would help. This means solvent plans can be used to bail out insolvent ones.
- Annual premium payments that companies participating in multiemployer pension plans pay will increase from $13 to $26 per worker. This was not in the original plan. It was added by Congress, and some companies see this increase as large and punishing.
- Current retiree benefits for recipients who are part of severely troubled plans can be cut. The cuts were part of the original plan, but Congress added protections, eliminating cuts for disabled retirees and retirees age 80 and older and limiting cuts for those 75 and older.
- Plans with 10,000 or more participants must allow all participants to vote on cuts before they are implemented, but a majority of all retirees and workers must vote. Even if a majority votes against the cuts, the U.S. Treasury Department can override the vote and uphold the decision to make them anyway, if it concludes that a plan poses a “systemic” risk to the economic health of the PBGC, which said in November that paying a large number of multiemployer claims could bankrupt it.
Saving or hurting pensions?
Randy G. DeFrehn, the executive director of the National Coordinating Committee for Multiemployer Plans hailed the measure, saying it “provides a path forward for these troubled pension plans that preserves benefits at higher levels than allowed under previous law.”
Pension rights activists see it differently.
“We are furious that without debate Congress has placed the burden of rescuing underfunded plans on the people who can least afford it — retirees and surviving spouses who rely on their pensions for food, medication, and other necessities,” said Karen Friedman, the executive vice president of the Pension Rights Center.
And Bruce Olsson, assistant legislative and political director for the International Association of Machinists, says the plan impacts the “wrong people and it shreds ERISA.”
Olsson dismisses the notion that a plan to fix multiemployer pensions shouldn’t include taxpayer help. “These retirees didn’t cause the problem. A lot of the problems that these plans have are due to the Wall Street collapse. We spent billion bailing out banks, why we can’t bail out retirees?”
Impact on other pensions
Some people also suggest passage of this bill could be the top of a slippery slope.
“This is potentially precedent setting because you are giving employers the ability to reduce benefits to retirees who are receiving benefits today,” says Jeff Snyder, vice president at consulting firm Cammack Retirement Group, and an expert on public and nonprofit retirement plans. “The possibility of reversing benefits could become a negotiation point and that is a concern. It creates doubt in the whole retirement system.”