Pension Plan to Cut Retiree Benefits Thanks to Congress

Last year Congress pulled a fast one on pension plans. They hid a new rule inside a massive $1.01 trillion spending bill as was reported by the Washington Post December 9, 2014. This rule upended 40 years of federal law about retirement pensions, and could affect millions of workers. This rule applies to about 1,400 multi-employer pensions, which cover some 10 million workers. Many of these retirement plans are still in good fiscal health and would be untouched by this new rule, but several are staggering toward insolvency because of bad management, bad investments, stock market loses, and even organized crime. These plans are paying out 3 times the money to retirees as they bring in from current employees and business contributions. These plans could seek pension reductions for retirees in the near future.

Rep. George Miller (D-Calif.) and Rep. John Kline (R-Minn.) led efforts to create this new rule, which has outraged retirement security advocates. It has also stirred strong opposition from retirees who could face deep pension cuts. Retirees have always been told that their pensions were secure, or they would be grandfathered in.

The Teamster’s Central States Plan is the first pension plan to file with the U.S. Treasury under this new law to reduce their pension payments to retirees. About 407,000 participants would see cuts in their pension checks of as much as 23 to 30 percent. Wow! I sure wouldn’t want to lose a one-quarter to one-third of my retirement income.

One retired trucker from Ohio is 70 years old, and retired after 33 years in 2000 as a long haul trucker with a pension of $3,300 a month is facing a 30% reduction or more if the pension plan is allowed to slash benefits. The Teamster’s Central States Plan has stated that it is currently paying out $3.46 for every dollar it takes in. As a result, they are paying out $2 billion in benefits more than they take in through employee contributions each year.

The Pension Benefit Guaranty Corp., the federal insurance program that backs private-sector pensions has warned that the problems facing multi-employer pensions could cause the federal insurance net that secures them to collapse within the next decade. If that happens, retirees would receive nothing if their pension plan fails. (A separate Pension Benefit Guaranty Corp. covering single-employer private pensions is in much better financial shape.) Even if the Pension Benefit Guaranty Corp. for multi-employer survives, the maximum coverage is about $13,000 a year for each retiree. Again, WOW! So you either lose an average of $10,000 a year, or you face the federal government only covering about one-third of your entire pension.

What is Congress doing? Approving new laws that will make all this legal. And if this applies to one group of pensions, how long before it applies to all of them? Even if your pension plan is financially sound today, what about tomorrow? Managers of these troubled pension plans say that absent a federal bailout, which they say is political anathema, cutting benefits is the only way to salvage these pension plans. They also claim that the longer they wait, the more severe the impact will be on retirees and current workers. The Teamster’s Central States Plan in the 1980’s had 4 active participants for every retiree. Now there are 5 retirees for every active participant. Some of this is from many unionized trucking firms going out of business since deregulation.

Again as an example, The Teamster’s Central States Plan has about $18 billion in assets and pays out annual benefits to retirees of $2.8 billion. The problem is they only take in about $700 million a year from employers. This means they will run out of money within 10 to 15 years. This is even after United Parcel Service (UPS) paid $6 billion to drop out of the fund. Of course UPS was one of the largest firms in Central States Plan. And that money was mostly lost when the stock market tanked in 2008.

Under this new rule, retirees over 75 or those who are disabled would be shielded from reductions in their pensions, but that still leaves a lot of people who will lose big time. These reductions would also be subject to a vote by the plan participants. Nonetheless, how many retirees will feel betrayed? I know I would. As one retired shipping clerk stated, he retired after 42 years on the job with a $3,000 a month retirement because he thought he would be grandfathered in with protections. And that’s not happening.

Before becoming one of history’s most infamous disappearance cases, James P. Hoffa, general president of the International Brotherhood of Teamsters wrote in a letter to Central States Plan, “Pension fund participants and beneficiaries did not cause the problem of under funding. They worked day in and day out to earn their pension credits. It is monstrously unfair that they will end up holding the short end of the stick.” Central States Plan was in trouble in the 1960’s and 1970’s from organized crime, mismanagement and fraud.

Some union leaders and their supporters, including Democratic presidential candidate Bernie Sanders say that the government should step in to shore up or bail out the pension plans. Senator Sanders has even introduced a bill that would repeal the rule allowing pensions to be cut. The U.S. treasury has 225 days to evaluate Central States Plan to trim pension payments. If approved, the cuts would then be voted on by plan participants.

What does that mean for the rest of us? How secure is your current retirement benefits? So if some Wall Street investor makes a bad investment and your money goes bye-bye tomorrow, how fast will your pension plan be filing under this new rule? It’s rather scary.

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