The measure would alter 40 years of federal law and could affect millions of workers.
A bipartisan group of congressional leaders reached a deal Tuesday evening that would for the first time allow the benefits of current retirees to be severely cut, part of an effort to save some of the nation’s most distressed pension plans.
The measure, attached to a massive $1.01 trillion spending bill, would alter 40 years of federal law and could affect millions of workers, many of them part of a shrinking corps of middle-income employees in businesses such as trucking, construction and supermarkets.
“We have to do something to allow these plans to make the corrections and adjustments they need to keep these plans viable,” said Rep. George Miller (D-Calif.), who along with Rep. John Kline (R-Minn.) led efforts to hammer out a deal.
The idea is reluctantly supported by some unions and retirement fund managers who see it as the only way to salvage pensions in plans that are in imminent danger of running out of money. But it also has stirred strong opposition from retirees who could face deep pension cuts and from advocates eager to keep retiree pensions sacrosanct, even in cases when funds are in a deep financial hole. The advocates argue that allowing cuts to plans would open the door to trims for other retirees later.
“We thought our pension was secure,” said Whitlow Wyatt, a retired trucker who lives in Washington Court House, a small city in central Ohio. “That was always the word. Now they are changing that.”
Wyatt, 70, retired with a $3,300-a-month pension in 2000 after working more than 33 years as a long-haul driver. He could face pension reductions of 30 percent or more if Congress permits trustees of the hard-pressed pension fund to slash benefits.
The deal is aimed at helping plans such as the Teamsters’ Central States fund.
The pensions earned by truckers in the fund are among the best enjoyed by working-class people anywhere: After 30 years on the road, many of its participants are entitled to upward of $3,000 a month for the rest of their lives.
But now the fund, rocked by steep membership declines, an aging workforce and downturns in the stock market, is in dire financial straits, putting the retirement benefits of 400,000 participants in jeopardy.
The deal reached would apply to multi-employer pensions, where a group of businesses in the same industry join forces with unions to provide pension coverage for employees. The plans cover some 10 million U.S. workers.
Overall, there are about 1,400 multi-employer plans, many of which remain in good fiscal health and would be untouched by the deal. But several dozen have failed, and several other large ones, including Central States, are staggering toward insolvency.
In its annual report last month, the Pension Benefit Guaranty Corp., the federal insurance program that backs private-sector pensions, warned that the problems facing multi-employer pensions could cause the safety net that secures them to collapse within the next decade.
If that happens, retirees depending on multi-employer plans for their pensions would receive nothing if their plans failed. (A separate PBGC insurance fund covering single-employer private pensions is in much better financial shape.) Even if the insurance fund survives, maximum coverage for people in multi-employer plans is minimal — about $13,000 a year.
Although it has issued similar alerts in the past, the PBGC’s latest warning seems to have pushed Congress to move from studying a policy change to actively negotiating for one in recent weeks.
The abrupt action has alarmed some pension rights advocates, who are concerned about a decline in retirement security for all Americans. They also worry about a creeping trend toward trimming pensions, citing retirement benefit cuts for government employees in Detroit and elsewhere.
But managers of deeply troubled funds say that absent a federal bailout, which they call politically infeasible, cutting benefits is the only way to save them. Last week, more than 1,300 employers sent letters to members of Congress urging lawmakers to back the proposal to allow benefit cuts.
“The longer we wait to take action, the more severe the impact on retirees and workers in the plans in the worst financial shape will become,” business leaders wrote. “The longer we wait, the heavier the burden will become on employers struggling to fund and extend these pension plans.”
