Advocates For Retired People ‘Incensed’ By 11th-Hour Pension Law Change

ATLANTA — Forty years after Congress took steps to guarantee that retirees get the pensions they were promised, another generation of lawmakers has taken a chisel to those legal protections.

Tucked into the must-pass federal spending bill that President Barack Obama signed earlier this month was a provision — backed by key members of both parties and even some labor groups — that allows a certain type of pension plan to drastically cut retirees' pension checks to avoid running out of money.

Lobbyists for a coalition of unions and companies got Congress to include the potentially landmark changes in a last-minute bill primarily aimed at providing $1.1 trillion to keep government operations going almost a year. The National Coordinating Committee for Multi-Employer Plans said a "fundamental restructuring of some basic precepts'' of the federal pension law was needed to ensure that some large pension plans remained viable.

But critics say the new rules undermine a central tenet of the 1974 federal pension law, the Employee Retirement Income Security Act, or ERISA, which essentially says that employers cannot cut retirement benefits once they've been earned, unless the company has gone into bankruptcy.

"We are incensed by this legislation,'' said Karen Friedman, executive vice president with the Pension Rights Center in Washington, D.C.

An official with AARP, the retiree advocacy group, called the new law an underhanded attack on vulnerable retirees.

"After a lifetime of hard work to earn their pensions, retirees don't deserve to receive a bad deal, in which they've had no say, cut behind closed doors and excluding the very people who would be impacted most,'' said Joyce Rogers, senior vice president with AARP.

Supporters say the move was necessary to shore up another creation of the 1974 pension law — the Pension Benefit Guaranty Corp. — which, in case of a bankruptcy or shutdown, insures private pension benefits up to certain limits.

"It's not a moment to rejoice,'' said Jean-Pierre Aubry, with the Center for Retirement Research at Boston College. But financially weakened pensions "need tools to navigate their way out of this,'' he said.

The federal agency said its employer-funded insurance pool for the pension plans covered by the new law is now $42.4 billion in the hole, and likely to run out of money within 10 years.

10 million affected

The new rules could affect up to 10 million workers and retirees, but only those in "multi-employer'' pension plans run jointly by unions and groups of companies, typically in the same industry, such as trucking, mining or construction. Single-company plans are not affected.

Under the new law, if a multi-employer plan is projected to run out of money in 10 to 20 years and other criteria are met, the plan could cut benefits of current retirees under age 80 by 30 to 60 percent, according to experts.

The Pension Rights Center estimated that a retiree who gets a $24,000 annual pension after working 30 years could see his or her benefit cut to as little as $14,157.

Coming on top of recent benefit cuts for public employees and retirees in Detroit and other cities and states struggling with soaring pension costs, the new law has alarmed some unions and retiree organizations who fear that, eventually, no retirees' pensions will be safe from cuts years after they retire.

"They are setting a very dangerous precedent,'' said Friedman. "Are corporations going to say 'Why is this only for multi-employer plans?'

" Is this going to give fuel to people who want to cut state and local plans? And what about Social Security?''

Supporters discount fear of wider repercussions.

By giving struggling pensions more flexibility to cut costs, the new law is intended to keep struggling multi-employer plans from failing and being taken over by the PBGC.

The law also doubles the premium that companies pay into the PBGC's multi-employer plan — to $26 a year per pension participant, but critics say that is still too low.

Experts generally don't see the same alarming trends at the PBGC's much larger insurance fund backing traditional pension plans run by single employers. That fund is in better shape than the multi-employer fund, but also in the red.

That program, which insures pensions for almost 31 million people, swung from a $29.1 billion deficit in 2012 to a $19.3 billion deficit this year.

PBGC also charges employers much higher annual premiums in its single-employer insurance program: from $49 per participant to as much as $412 at higher-risk pensions.

Multi-employer pensions — because they collect contributions from several companies — were once considered more secure than pensions sponsored by single companies. But like many pension plans, they have been weakened by losses from two stock market crashes since 2000, sometimes too-generous benefits, and aging workforces, which have left them with too few younger workers to support rising payments to more and more retirees.

But multi-employer pensions have also been hit by unique challenges. As many of the nation's industrial companies have gone out of business, or pulled out of the plans if they saw signs of trouble, fewer firms and workers remained to pay in contributions.

The biggest chunk of the PBGC multi-employer fund's deficit — $26 billion — is due to just two struggling pension plans, the 115,000-member United Mine Workers union plan, and the 400,000-member Central States Teamsters union plan. In 2007, United Parcel Service reached an agreement with the Teamsters to pull about 44,000 of its employees out of the Central States plan in exchange for paying $6.1 billion into the pension fund. They are now in a company-run pension plan. At the time, the Central States pension only had enough assets to cover half of its obligations. But its financial condition has plunged since then. It is now the biggest threat to the PBGC's multi-employer insurance fund, with only enough assets to cover 35 percent of its obligation to pay $2.8 billion a year in benefits.