(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Mark Miller
CHICAGO, March 9 Karen Friedman has been
traveling the country speaking at meetings of retired union
members - and they are angry. What riles them is the prospect of
deep cuts in promised pension benefits, and they are hoping for
relief from President Donald Trump.
"Many of them were Trump voters," said Friedman, executive
vice president and policy director at the Pension Rights Center
(PRC), a nonprofit advocacy group. “These are the folks the
president campaigned for, and he made promises to protect the
The threatened benefit cuts, which could impact 1.5 million
retirees and workers, stem from deep financial problems
affecting some multiemployer pension plans - traditional defined
benefit plans jointly funded by groups of employers - typically
in industries like construction, trucking, mining and food
More than 10 million U.S. workers and retirees are covered
by 1,400 of these plans - many of them in Trump-supporting U.S.
Rust Belt states like Ohio and Michigan. But as many as 200 are
severely underfunded - the result of stock market crashes in
2001 and 2008-2009, and industrial decline that led to
consolidation and declining employment. The problems threaten
individual workers’ pensions, but also could bring down the
fail-safe backstop that insures the pensions of many millions
The U.S. Congress passed legislation in 2014 that aimed to
head off an implosion of multiemployer plans. The Multiemployer
Pension Reform Act of 2014 (MPRA) allows troubled plans to seek
federal government permission to make deep cuts to the future
pensions of workers - and even for current retirees - if they
can show that cuts would prolong the life of the plan.
In theory, that would stave off plan failures - and help
avert a complete draining of the multiemployer insurance
reserves of the Pension Benefit Guaranty Corp (PBGC), the
federally sponsored agency that backstops private-sector defined
benefit pension plans.
That was the theory, anyway. In practice, MPRA pension
reform plans have met with stiff political resistance and
skepticism from decisionmakers in government.
CENTRAL STATES POSTER CHILD
The poster child for the multiemployer plan problems has
been the Teamsters’ Central States Pension Fund, which covers
400,000 participants and is a financial basket case. Last May,
the U.S. Treasury rejected an application by the fund to cut
benefits, saying the plan sponsors had not met certain MPRA
Treasury - which plays the key role under MPRA of reviewing
these applications - said the plan failed to demonstrate that
the cuts were properly estimated to avoid plan insolvency, and
that it did not distribute reductions equitably or explain the
actions to plan participants in an understandable way.
This was a major test case for MPRA. Central States is on a
path to insolvency within 10 years unless a solution is found.
The proposed cuts average 20 percent, but some of the
longest-tenured plan participants would suffer much larger
reductions - as high as 70 percent, according to PRC. The
sharpest cuts would have been borne by so-called orphans -
retirees from companies that have exited the plan. Older and
disabled retirees would have been exempted.
The government has denied applications to make cuts from
three other plans, according to PRC, and several other plans are
under review. But in December, the first plan approval was
granted to the troubled Iron Workers Local 17 pension fund.
In February, about half of the plan’s 2,000 participants
started to receive reduced pensions; in most cases, the cuts
range from 10 percent to 30 percent - but they are as large as
60 percent in a few cases.
Under MPRA, cuts must still provide participants with at
least 10 percent more than they would receive if the plan went
belly-up and PBGC took over benefit payments. (Union members
must vote to OK the cuts, but low turnout favors approval, since
nonvoting members are counted as "yes" votes.)
Still, the proposed Central States cuts generated huge
controversy among retirees, who have been showing up at rallies,
legislator town hall meetings and testifying in Congress to
express their anger.
Their emotions are justified. It never makes sense to break
pension promises to people who already are retired and have no
ability to adjust. Trump's new Treasury secretary, Steven
Mnuchin, said as much during his U.S. Senate confirmation
hearing in January. “People who have worked very long periods of
time and have built up a pension deserve to get their pension,”
he said. “That is very important.”
But he went on to say: “We have to be careful that on the
other extreme we don't have a bailout of the entire pension
industry and bankrupt the guarantee fund.”
Mnuchin is correct on both points. So - what now?
PRC and others are working on legislative proposals and hope
to convene a meeting soon of stakeholders to develop a consensus
approach. Any new plan will still spread the pain,
unfortunately. Proposals that have been floated include higher
PBGC premiums for plan sponsors, offset by tax breaks; asking
current retirees to make small membership-style payments into a
fund to help bolster plans; others have suggested a targeted
Some aggrieved retirees have suggested taxing financial
institutions that helped cause the 2008 economic meltdown in
order to force them to help solve the problem. That is an idea
Mnuchin - who previously worked at Goldman Sachs Group Inc
- should consider as he ponders the options. But I am not
counting on it.
(Editing by Matthew Lewis)