Pension Cuts for Retirees Now PossibleCategories: California Developments,Legislative Updates,National Developments,New England Developments
Public Retirement Journal, by Amy Brown, February 2015
For the first time, Congress approved a measure allowing for the benefits of current retirees to be severely cut in order to bail out severely stressed pension funds. While this measure only impacts multi-employer plans maintained by unions, it sets an important precedent by allowing the erosion of promised benefits to current retirees. Impacted retirees are mostly those retiring from businesses like trucking, construction and supermarkets.
While this was the product of a bipartisan agreement with labor groups reluctantly going along, retirees opposed the cuts. These cuts obviously pose a big hit to the middle-class retirees relying on this pension income. “We have to do something to allow these plans to make the corrections and adjustments they need to keep these plans viable,” said Rep. George Miller (D-Calif.), who along with Rep. John Kline (R-Minn.) led efforts to hammer out a deal.
Overall, there are approximately 1,400 Taft-Hartley plans impacted by this deal, though most are in good fiscal health. The Pension Benefit Guaranty Group, the federal insurance program that backs private sector pensions, says its multi-employer insurance program could collapse within the next decade due to the problems facing several Taft-Hartley pension plans. Many have already failed.
Over 1,000 business leaders wrote Congress asking them to accept the deal, saying the longer Congress waits to take action, the more severe the impact on retirees and workers in struggling plans. For example, the Teamsters’ Central States fund was taken over by professional financial managers years ago operating under federal court supervision. But past mistakes are to the point that they cannot be unwound.
In 1980, the plan had 4 active employees for every retiree; now there are nearly 5 retirees for each active worker because unionized trucking firms have gone out of business in the decades since regulation. The fund has about $18 billion in assets and pays out annual benefits of $2.8 billion to retirees. With annual contributions of just $700 million, the fund is set to run out of money in 10 to 15 years.
Critics also object to the secrecy of the deal making process, saying there was no urgent need to pass the 161- page pension deal just days after it was made public as part of a much larger spending bill. The Teamsters also say there’s a provision that could save the United Parcel Service (UPS) about $2 billion, calling it an “outrageous government bailout of one of the most profitable companies in America.”
Published by Amy Brown, the Public Retirement Journal provides a very timely source of valuable information and insight into public retirement, health care and related benefits. The Journal seeks out, and interviews, those people shaping public retirement policy and helps our readers understand just what they have planned in this field.
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