Lame duck Congress tries a lame move on pensions

The mid-term election results have changed the political landscape in a way that threatens the retirement security of middle class households. But we don’t even have to wait for the new Congress to be seated in January to know just how bad things could get. This week, the lame duck Congress pulled a lame move, inserting “Solutions Not Bailouts,” a plan to shore up struggling multiemployer pension funds – into the $1.1 trillion omnibus spending bill just approved by Congress (Update: President Obama has now signed it into law).

Multiemployer pension reform is needed. But two things are troubling about this plan.

First: it is centered around a bad idea: it allows plan trustees to cut benefits for people who already are retired. That should never happen, because most retirees living on fixed income have little recourse to adjust their financial plans.

Second: The process is deeply troubling. Although hearings have been held about this plan over the past two years, no legislator has ever had to take a specific vote on it – and it now appears they never will need to do so.

At this writing, it’s not clear the spending bill will be passed – it’s struggling under the weight of a significant rollback of the 2010 Dodd-Frank Act, and a provision that gives big donors more influence over political parties. There’s also been pushback against the pension plan from senators Tom Harkin (D-Iowa) and Ron Wyden (D-Oregon). But “Solutions not Bailouts” has been moving down the track for two years now, and even if it doesn’t make it through this time, expect it to surface in the new Republican-controlled Congress.

Multiemployer plans are traditional defined benefit pension systems that jointly funded by groups of employers in industries like construction, trucking, mining and food retailing. They have long been thought to be safer than single employer plans, owing to the pooling of risk. As a result, the level of Pension Benefit Guaranty Corporation (PBGC) insurance protection behind the multiemployer plans is lower. But many industries in the system have seen declining employment and have a growing proportion of retirees to workers paying into the pension funds. And many of the pension funds still have not fully recovered from the hits they took in the 2008-2009 market meltdown.

These problems pose a major threat to the PBGC. The agency reported recently that the deficit in its multiemployer program rose to $42.2 billion in the fiscal year ending Sept. 30, up from $8.3 billion the previous year. If big plans fail, the entire multiemployer system would be at risk of collapse.

Pension advocates are furious that the bill is being stuffed through in the omnibus bill, arguing that this isn’t an emergency that can’t wait. A couple big plans are close to insolvency -notably the Teamsters’ Central States fund and the United Mine Workers of America fund. But

for many, the problem is 10 or 20 years down the road – and much can happen over that time. A recent analysis by the Center for Retirement Research at Boston College notes:

Reasonable people could question whether the situation is as dire as claimed by the PBGC. Indeed, the actuaries undertake some sensitivity analysis but examine only the downside. For example, the report shows that if interest rates used to calculate liabilities were 33 basis points lower, the deficit would be $2.5 billion higher. But interest rates are more likely to be higher than lower: if rates rose by one percentage point, the ten-year deficit would be $7 billion lower. More importantly, if the economy continues to improve, market returns remain high, and the plans continue to report improved numbers, the deficit could drop further.

“Solutions not Bailouts” was developed by the National Coordinating Committee for Multiemployer Plans (NCCMP), a coalition of multiemployer pension plan sponsors and some major unions. Its premise is that that Congress won’t -and shouldn’t – prop up the multiemployer system. That’s more than a bit ironic, after the bailouts of Wall Street banks, automakers and insurance giants, and yet more giveaways in the very same spending bill containing the pension reforms.

Instead, the plan calls for a change to the Employee Retirement Income Security Act to grant plan trustees broad powers to cut retired workers’ benefits if they can show that would prolong the life of the plan. That would mark a major change from current law, which calls for retirees to be paid full benefits unless plan assets are exhausted; then, the PBGC steps in to pay benefits, albeit at a much lower level. The bill also would increase PBGC premiums paid by sponsors, from $13 to $26 per year.

If the Senate passes the bill and President Obama signs it, that’s a bad sign for retirement policy in the last two years of this administration. The GOP-led Congress will mount efforts to chop Medicare benefits and raise Social Security’s retirement age. Mr. Obama has signaled in the past that he is open to changes like this; if he sign offs on the ERISA reforms in this omnibus bill, there’s no reason to expect  him to reject other retirement policy changes.

Photo: Marc-André Jung via Flickr


  1. Having a fixed guaranteed income is great but probably not practical. Too many guarantees, when there was no economic basis to support those guarantees, is what got us into this situation. It is similar to layoffs. I’d rather have the option of taking a lower paycheck and dealing with that than being laid off. I would only want to add that if a pension system is in good shape and growing that pensions could be increased. Make it more like an investment, and not a misleading “guarantee.”

    The holy grail seems to be the “fixed” notion but as a consultant now, after many years on fixed salaries, adapting to a varying income has not been a problem. In fact it now makes more sense to me than using fixed salaries and naturally results in a better financial awareness and discipline. Sometimes we try too hard to make things too easy and instead just set expectations that can’t be met betraying those people we have “guaranteed” to help.

  2. Defined benefit pensions should be protected and expanded. The defined contribution plans have no guarantees.
    Employers want to do away with defined benefit plans and with the help of the bought and paid for politicians they may get away with it.
    What an injustice to the workers who planned their retirement on their pensions being protected.

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