In December the Congress passed, and the President signed, legislation that carved a hole in a 40-year-old pension law that prevented employers from lowering benefits earned by those already retired. Under the new legislation, benefits can now be cut for people covered under multiemployer plans that are considered to be in critical financial condition. The new law takes effect in 2015.
A multiemployer plan is a pension plan, usually established within contracts negotiated between unions and employers, which covers workers in certain work sectors. For example, it could be steelworkers or other sectors that cover a whole class of workers in a particular industry.
This would have seemed unconceivable not too many years ago, but in the more conservative halls of Congress these days it was not only debated but passed and signed by a Democrat President.
The reason given for this action is that the federal Pension Benefit Guarantee Corporation (PBGC), which insures these pensions, has indicated that about 10 percent of multiemployer plans covering about 1.5 million people are in such financial trouble that they may become insolvent. And the PBGC estimated that its fund which insures these plans will likely run out in money in eight to 10 years unless changes are made.
Some consumer advocates argue that these pensions are not in immediate danger and other alternatives should be considered, such as scaling back on optional benefits in a plan and/or providing the PBGC with greater funds and the authority to intervene earlier. Maybe it would be a good idea to make sure that the companies involved properly fund their pension plans so that beneficiaries are covered and the PBGC does not have to get involved. Too many delay funding the program (sometimes for years) and then cry poor when the benefit fund turns sour. A number of states have done the same thing — and then blame the problem on the workers.
It is up to the plan trustees to determine how much to cut benefits, if that is deemed necessary, but the legislation does offer some restrictions. For example, benefits cannot be cut for retirees age 80 and older or those receiving a disability pension. Retirees under age 75 would see bigger cuts that those ages 75 to 79, whose benefits could be cut but not as much. It would be inappropriate here to estimate the extent of the cuts, but some have indicated they could be substantial.
Although participants in the pension plans will get to vote on any proposed pension cuts, the Pension Rights Center (PRC) says this is "illusory." A majority of all participants, not just those voting, but all employees and retirees, must reject the cuts, the PRC says. Ballots can be sent via email, which could be a problem for those without internet access. And, according to the Pension Rights Center, even if participants overwhelmingly reject cuts to the pension benefits, their vote can be set aside if the troubled plan may jeopardize the financial health of the PBGC.
What this means is that workers who may have worked for 30 or more years at a trade, and counted on their pension to sustain them in their retirement years, may now have the income on which they live cut back substantially — maybe even to the poverty level. And these pensions were guaranteed under contract — often in lieu of pay raises.