Several major unions won a big victory with the omnibus spending bill, but it is one that they are not eager to trumpet: The right for pension plans to cut recipients’ benefits.
Currently, pension funds are forbidden by law from cutting benefits. But lawmakers included language in the bill, backed by several major labor organizations and trade associations, that would allow pension plan trustees to reduce payments to recipients so troubled plans can restructure and survive.
The change, authored by Reps. John Kline, R-Minn., and George Miller, D-Calif., would apply to an estimated 1,400 multi-employer pension plans that cover about 10 million people. It is the bipartisan success few want to claim.
“We are not making a comment. We don’t feel any particular need to. The omnibus is over. It’s done,” said Tom Owens, communications director for the North America’s Building Trades Unions, a coalition group within the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) labor federation. Other unions that backed the changes included the 2 million-member Service Employees International Union and the 1.3 million-member United Food and Commercial Workers. Neither responded to requests for comment.
Multi-employer plans are defined benefit pension funds that multiple businesses pool their resources into. The plans are jointly managed by business and labor groups. Should a business fail, the remaining ones are obligated to pay benefits to that company’s retirees. Several plans are in trouble due to the recession, company bankruptcies and ballooning payments as retirees live longer.
Some companies are fleeing them. In 2006, the United Parcel Service paid $6.1 billion to pull out of the Teamsters’ Central States plan, which now pays $2.8 billion annually to recipients but receives only $700 million from the remaining employers.
Allowing benefit reductions cuts deeply against the grain for the unions, which typically fight any reduction in benefits. Rather, it is a grudging concession to economic realities.
The reforms pitted the backers against others in organized labor and the progressive left. Robert Borosage, co-director of the labor-backed Campaign for America’s Future, said he understood the supporters’ motives but still thought they were wrong, calling the change a “truly deplorable precedent.”
“Miller is one of the finest legislators of his generation. He was trying to make the best of an impossible reality,” Borosage said. “But the deal, for the first time, authorizes the cutting of vested pension of workers who are already retired.”
The 500,000-member Laborers International Union of North America, a member of the building trades coalition, dissented because the reforms also doubled, from $13 to $26, the annual contribution pension recipients must pay to the Pension Benefit Guaranty Corporation (PBGC), the federal insurance agency that steps in and makes payments should a plan fail.
“We don’t see any reason why healthy plans should have to subsidize failing ones,” LIUNA spokesman David Mallino told the Washington Examiner. LIUNA argues the change will only weaken the healthy plans.
Miller, a staunch liberal and union ally, has vigorously defended the changes. “Right now, if we do nothing, those retirees have a very high likelihood of losing all of their benefits or going to the PBGC and getting the maximum benefit of $1,200 a month,” he told the House Rules Committee last week.
The changes would allow plans to cut benefits but still keep them above what they would get from the PBGC if their pension plan failed, Miller argued.
That reality may explain why others sat out the fight. The AFL-CIO did not take a position on the pension changes. While many Democrats opposed the omnibus bill, few cited the pension reforms as a reason. Sen. Elizabeth Warren, D-Mass., the chamber’s most outspoken liberal, focused on its changes to banking regulations.
Kline and Miller’s reforms would allow trustees of severely underfunded plans to make the cuts provided the changes are approved by plan participants in a vote. Those over 80 years old will be protected. Those over 75 will get partial protection. The Employee Retirement Income Security Act currently forbids trustees from cutting benefits that recipients already have earned.
“The amendment does not mandate cuts, but instead gives trustees the option to cut benefits if a cut will prevent the plan from becoming insolvent,” said the National Electrical Contractor Association, one of the business trade groups that backed the changes.
Miller stressed that benefit cuts would happen only if voted on by a majority of participants, including the retirees in the plan. Many local unions have said they want to cut benefits to extend the life of their plans, the lawmaker argued. “Who are we to say” that they cannot, Miller asked.
Over the last decade the PBGC has paid out $800 million to shore up financially troubled plans. About 1.5 million workers are in multi-employer plans that don’t have the assets necessary to pay out promised benefits, according to the Bureau of Labor Statistics.
The PBGC is itself severely underfunded. A Government Accountability Office report last year found that it had a deficit of $34 billion. Many in Congress fear that if the rate of private plan failure increases, Congress will be obligated to cut funds from elsewhere to bail out the PBGC.
