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