Large Pension Fund Files Plan to Cut Retiree Benefits Under New Law
Wednesday, October 7, 2015
The Washington Post
By: Michael A Fletcher
Nearly 300,000 former truckers and their families would suffer significant losses under a proposal that uses a controversial new law to cut once sacrosanct pension benefits.
The huge Central States Pension Fund, which administers retirement benefits for some former and current Teamster truckers, said the reductions are the only way to save the plan from insolvency.
“A realistic rescue plan is needed now,” said Thomas C. Nyhan, executive director of the Central States Pension Fund. “The longer we wait to act, the larger the benefit reductions will have to be.”
Under the proposal, pensions for Central States’ 407,000 participants would be cut by an average of nearly 23 percent. But the pain would be distributed unevenly. Some participants, including the disabled, would not be subject to reductions. Older retirees would generally receive smaller cuts, while those who worked for defunct companies that did not keep pace with their pension funding obligations would face steeper reductions.
The proposed cuts were detailed in a plan submitted to the Treasury Department late last month. In it, Central States said the reduced number and increased age of its participants have left it paying out $3.46 for every dollar it takes in. The result is that the plan is disbursing $2 billion more in benefits than it takes in through employer contributions each year.
Officials say the pension plan was hurt by significant membership losses after the trucking industry was deregulated in the 1980s. Central States also suffered catastrophic investment losses during the stock market crash that accompanied the Great Recession. Since then, its investments have returned about 13 percent a year, but that has not been enough to return it to sound footing. Without changes in its benefit formula, the pension plan is on course to be insolvent by 2026, Nyhan said.
A Treasury official said Central States is the first to file a proposal with the federal government to reduce benefits under a law that was passed late last year. The measure for the first time allows the benefits of current retirees to be cut in order to address the fiscal distress confronting some of the nation’s multi-employer pension plans.
An estimated 1 million people, including many retirees, are in multi-employer pension plans that federal officials say are in danger of running out of money in the near future. Multi-employer plans are formed by businesses and unions that join forces to provide pension coverage for working-class Americans, including truck drivers, grocery store clerks and construction workers.
If some of the larger multi-employer plans are allowed to collapse, the federal insurance fund that protects them could also collapse. Given that, a coalition of plan trustees and unions said the only way to salvage the most distressed pension plans is to allow them to cut retirement benefits before they run out of money.
The law was enacted in the face of strident opposition from some unions and pension advocates, who argued that allowing plans to cut retiree benefits violates the core promise of traditional pensions: that they would provide a defined benefit for life.
Now that the first pension plan is moving to make cuts, opponents’ anger has been rekindled.
“Pension fund participants and beneficiaries did not cause the problem of underfunding,” James P. Hoffa, general president of the International Brotherhood of Teamsters, wrote in a letter to Central States. “They worked day in and day out to earn their pension credits. It is monstrously unfair that they will end up holding the short end of the stick.”
Some union leaders and their supporters, including Democratic presidential candidate Bernie Sanders, say the government should step in to shore up the pension funds. Sanders, an independent senator from Vermont, has introduced a bill that would repeal the measure allowing pensions to be cut.
Nyhan said Central States would embrace that solution as well. The problem, he said, is that it appears to be a political impossibility.
Treasury has 225 days to evaluate Central States’ plan to trim pensions. If officials approve the reductions, the cuts would then be voted on by plan participants. But even if participants vote the plan down, the law says it could still be imposed for the sake of protecting the broader pension guarantee system.