17 July 2019

Pension Bill Seen as Model for Further Cuts

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A measure included in Congress’s mammoth spending bill permits benefit cuts for retirees in one type of pension plan, a big shift that lawmakers and others believe could set a precedent for other troubled retirement programs. The legislation is aimed at defusing a potentially explosive problem—the deteriorating condition of what are known as multiemployer plans, jointly run by unions and employers.

The bill cleared by the Senate late Saturday would allow troubled funds to cut benefits for current retirees in some circumstances. That is an exception to a long-standing federal rule against scaling back private-pension benefits. Lawmakers and experts, while divided over the merits of the change, largely agreed that it could well be the first of many.

The measure “would set a terrible precedent,” said Karen Friedman, executive vice president of the Pension Rights Center, a group that advocates for wider pension coverage and opposes benefit cuts. The bill could encourage similar cutbacks in troubled state and local pension plans, and possibly even Social Security and Medicare, she said. Some conservatives contend the bill would encourage policy makers to recognize and deal with shortfalls in benefits programs.

Multiemployer plans are jointly administered by unions and employers and are funded by multiple employers in a given industry, typically in fields such as trucking, retail and construction. There are about 1,400 plans in all, covering roughly 10 million people. Because of declining ratios of active workers to retirees, and loose funding standards, some of the larger plans, such as the Teamsters’ Central States fund, are in dire financial condition.

The failure of just a few of these plans quickly would bankrupt the federal pension safety net. The safety-net agency, the Pension Benefit Guaranty Corp. recently widened its projected long-term deficit for multiemployer plans to $42 billion.

Under the bill, trustees of financially troubled plans could vote to cut retiree benefits. While plan participants could vote to disapprove a benefit cut, any vote not approving a cut could be overridden for a plan that is considered big enough to pose a threat to the federal safety net. The bill’s chief backers said last week they were seeking only to address the specific problems of multiemployer plans and weren’t aiming to influence broader debates about other retirement programs. Other lawmakers maintain that the new legislation could encourage policy makers to consider cutbacks in benefits in a variety of underfunded retirement programs.

The bill was introduced Tuesday, after several years of hearings, and approved by the House on Thursday as part of a broad spending measure. It was cleared by the Senate late Saturday. Many states and local governments have started taking steps to shore up underfunded pension plans, with changes including rollbacks of promised future benefit increases and bigger contributions and work requirements for employees. Only a handful of governments have reduced benefit payments so far.

As of fiscal 2013, public-employee funds faced long-term deficits of more than $1 trillion, with liabilities of about $3.8 trillion and assets of about $2.73 trillion, and an average funding level of 72%, according to the National Association of State Retirement Administrators. Funding levels have been declining fairly steadily.

Some experts said the significance of the multiemployer changes is being exaggerated, at least when it comes to state- and local-government pensions. But some of those protections also are becoming vulnerable, as more face financial crunches.

Click here to access the full article on The Wall Street Journal. 

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