More than a quarter of a million truckers, retirees and their families could soon see their pension benefits severely cut – even though their pension fund is still years away from running out of money.
Within the next few weeks, the Treasury Department is expected to announce a crucial decision on whether it will approve reductions to one of the nation’s largest multi-employer pension plans.
The potential cuts are possible under legislation passed by Congress in 2014 that for the first time allowed financially distressed multi-employer plans to reduce benefits for retirees if it would improve the solvency of the fund. The law weakened federal protections that for more than 40 years shielded one of the last remaining pillars that workers could rely on for financial security in retirement.
For many workers, the promise of a guaranteed income stream for life – a benefit now nearly extinct for younger generations – was at times strong enough to convince them to sacrifice pay raises or other job opportunities.
But after decades of challenges that left many pension funds in tough financial straits, some people are learning in retirement that the promises made to them may be broken.
The Central States Pension Fund, which handles the retirement benefits for current and former Teamster union truck drivers across states including Texas, Michigan, Wisconsin, Missouri, New York and Minnesota, was the first plan to apply for reductions under the new law.
Consumer advocates watching the case say the move could encourage dozens of other pension plans across the country that are facing financial struggles to make similar cuts.
“This is going to be a national crisis for hundreds of thousands, and eventually millions, of retirees and their families,” said Karen Friedman, executive vice president of the Pension Rights Center.
Like many other pension plans, the Central States Pension Fund suffered heavy investment losses during the financial crisis that cut into the pool of money available to pay out benefits. While the stock market has recovered since then, the improvements were not enough to make up for the shortfall that grew as the number of companies contributing to the plan declined and the number of people retiring and collecting benefits increased, said Thomas Nyhan, executive director of the Central States Pension Fund.
That imbalance left the fund paying out $3.46 in pension benefits for every $1 it received from employers. The shortfall has resulted in the fund paying out $2 billion more in benefits than it receives in employer contributions each year.
If nothing is done, the fund could become insolvent by 2025, said Nyhan. And because of its size, the plan could overwhelm the Pension Benefit Guaranty Corporation, the insurance agency meant to shore up private pension funds, if it went under, Nyhan said.
The Central States Pension Fund pays out $2.8 billion a year in benefits, which would be reduced if the plan became insolvent. By comparison, the PBGC fund that backs multi-employer plans has $2 billion in assets and is projected to be insolvent by 2025.
Nyhan said he feared not taking any action could leave retirees with no pension at all. “It’s not a question of if there are going to be cuts. The question is where and when.”
If Treasury approves the fund’s proposal, then retirees could see their paychecks shrink by July 1. The move would give the fund at least a 50 percent chance of lasting for another 30 years as opposed to running out of cash in 10 years if no changes are made, Nyhan said. A decision is expected by May 7.
But opponents say there may be some negative consequences if the cuts are approved.
“It’s going to open the floodgates for other cuts,” said Friedman of the Pension Rights Center.
Out of the 10 million workers and retirees covered by multi-employer pension plans, roughly 1 million people are in plans that could run out of money over the next two decades, according to estimates from the PBGC. Already, three other pension plans that pay benefits to truck drivers and ironworkers have applied to the Treasury to have their pension benefits reduced.
The proposal introduced in September by Central States would cut benefits for current workers and retirees by 23 percent on average, though exact amounts would vary based on people’s age, health status and where they worked.
For many retirees, the losses may be much steeper.
Ava Miller, 64, and her husband, Ed Northrup, 68, could see their combined monthly pension income cut to about $3,000 from the nearly $7,000 they receive now, according to a letter they received from Central States in October.
If the cuts go through, Miller, who worked as a dispatcher in Flint, Mich., said they will need to dip into their savings to help cover their $1,300 mortgage payment, heating bills and trips to visit her 84-year old mother. Northrup, a retired car hauler, has started applying for truck driving jobs that could supplement their potentially smaller pension payments.
What makes the cuts more painful, Miller said, is that she took pay cuts so that the company could continue making contributions to the pension.
Critics of the cuts say the fund still has time to come up with an alternative solution. Some retirees and other supporters have rallied behind a bill introduced by Democratic presidential candidate Bernie Sanders (Vt.) that would repeal the measure allowing the cuts, calling instead for the government to provide assistance.