December 2014, under threat of a government shutdown, congress approved a bill that would keep the government operating. Tucked away in that legislation was an ominous bill that granted multi-employer pension plans the right to reduce the payout to those who are already in retirement.
For the last 40 years’ pensions have been protected. Once you retired, employers were prevented from reducing benefits and they were guaranteed for life. Now that guarantee is being taken away putting vulnerable seniors at risk. No longer can you count on your pension to make timely payments throughout your retirement.
Who Is Impacted
Retirees who are under multi-employer pension plans with over 10,000 participants are included in the new legislation. While it opens the door for single employer plans to be granted the same exclusions, for now, single plan providers are still under the old law, which prevents reduction of benefits once retirement payouts begin. Industries at risk include those in the healthcare, trucking and hospitality industries.
For retirees over the age of 80 benefits still cannot be cut. Those under the age of 80 could see a reduction of benefits as high as 60%. This means for every $1000 in benefits you currently receive, you could lose up to $600 a month in payments. This could result in families living comfortably in retirement suddenly having a long term financial crisis, because you have no means in of increasing income well after retirement.
Many pension plans are running short of money and this fact has created a cash flow problem for pension plans. Those who merged from single employer plans into multi-employer plans within the same industry have struggled to keep up with slow market gains from conservative investment portfolios and increasing payouts due to longer life expectancy.
If the plans become insolvent, they would be moved to the Pension Benefit Guaranty Corp., which is a company that insures private pensions and benefits would be reduced. The new legislation allows trustees to make the decision on whether to cut benefits and if so, how much. While employees and retiree have the right to vote on any such change in plans, the vote is non-binding. This essentially gives the plan administration the ability to reduce benefits without any roadblocks.
The pension plans are required to “elect” someone to represent the retired workers, however, the pension administration is the one who chooses the representative, not the retirees.
AARP and other consumer advocates are attempting to put the brakes on these changes and are encouraging the US Treasury Department to evaluate other alternatives that will keep benefits in place. The Treasury Department is responsible for laying out the final legislation regarding how and when pension cuts would come about.
Long Term Impact
These changes could reduce the income of retirees who are no longer able to return to work to support their family, increasing the financial crisis already experienced by millions of retirees. There are currently 1400 multi-employer plans covering 10.4 million participants. Not all of the multi-employer pension plans are in financial trouble and considering cuts to the pensions of current retirees.
The real concern is that this legislation undermines the security of all pensions, leaving seniors who rely on pension payments at risk of major financial declines at the time when they are least able to recover.