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.
So instead of letting debt or lack of income take a toll on
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