Breaking Pension Promises is No Solution at All

 

Complexity is to be expected when discussing an issue like pensions. So for the moment let’s make things simple: 150 to 200 multiemployer plans are severely underfunded and may run out of money in 15 to 20 years if no action is taken. There are approximately 1.5 million workers and retirees in these plans. To solve this problem, members of Congress are considering a proposal that would allow the trustees of these plans to immediately cut benefits across the board for all participants, including those who have been retired for many years.

Let’s borrow an example from a Wall Street Journal article to illustrate how this proposal would work: Greg Smith worked for 31 years under the Central States Teamsters Plan, which is underfunded. He currently receives a monthly pension of $3,019. If this proposal were implemented, Mr. Smith’s benefit would be cut immediately by more than half, down to $1,200 per month.

Advocates of the proposal say that “a haircut today is better than a beheading later.” They argue that if the plan runs out of money in the future, retiree benefits would be even lower ($1,108/month, in Mr. Smith’s case). That is because the benefits guaranteed by the federal pension insurance program are very low.

In fact, the “haircut” looks exactly like a beheading for Mr. Smith, because, under the proposal, the cuts would happen now, and he may not be alive two decades from now, when the plan is projected to run out of money. Such a drastic and preemptive strike ignores the fact that a lot can happen in 20 years, and that other steps can be taken to shore up his plan’s funding. Mr. Smith and the other participants are being asked to give up money that they earned in order to fix a problem that they didn’t cause.

This proposal violates the most fundamental principle of pension law: no cuts in retirees’ earned benefits in ongoing pension plans. If adopted, the proposal would set a terrible precedent that could open the door to cuts to earned benefits in other types of pension plans. It would destroy the trust between retirees and their plans.

The Center and other groups have come up with alternative recommendations for fixing multiemployer plan funding issues. We hope that members of Congress will consider these recommendations before proceeding.

For more information, read our new fact sheet on multiemployer pension plan funding, which discusses the retiree cutback proposal and links to a calculator that allows retirees to determine how much their pension could be reduced if the proposal were adopted.