Congress in no mood for pension bailout

Andrew Harrer | Bloomberg | Getty Images

Congress may have bailed out Wall Street and the auto industry, but it's apparently in no mood to bail out retirees at risk of losing their pensions.

After a flurry of last-minute, behind-the-scenes maneuvering, lawmakers Thursday finalized a deal to shore up the government's pension insurance fund by raising premiums and allowing troubled pension plans covering more than one employer to cut retiree benefits.

The provisions, which drew loud opposition from unions and other groups representing retirees, were expected to come to the floor for a vote Thursday as part of a massive, $1.1 trillion spending bill.

Proponents argued that the changes would keep the failing pension plans afloat and keep benefits flowing to retirees.

"We have a plan here that first and foremost works for the members of the unions, the workers in these companies and it works for the companies," said Rep. George Miller, D-Calif., who worked the deal out with Rep. John Kline, R-Minn.

But some union officials and retiree advocates like AARP slammed what they saw as a sneak attack on a decades-old promise to workers and their families.

"Today, we have seen the ugly side of political backroom dealings as thousands of retirees may have their pensions threatened by proposed legislation that reportedly contains massive benefit cuts," said Teamsters President James Hoffa.

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The fix proposed by Congress would allow employers to cut benefits to help cover higher premiums to shore up the Pension Benefit Guaranty Corp., the government insurance fund backing these plans.

"The problem is much more serious than skimming retirement benefits to keep the PBGC on life support," said Richard Greer, a spokesman for the Laborers' International Union of North America. This proposal "would siphon off tens of millions of dollars in hard-earned retirement benefits to try and rescue the PBGC."

There's wide agreement on one thing: The PBGC needs to be rescued before it collapses.

About a quarter of the roughly 40 million workers who participate in a traditional "defined benefit" plan—those that pay retirees a guaranteed check every month—are covered by these plans, according to the Bureau of Labor Statistics.

Multiemployer plans are jointly backed by employers in industries like construction, trucking, mining and food retailing. Though many of the roughly 1,400 such plans are in good shape, some 1.5 million workers are in plans that are failing.

Both public and private pension funds were hit-hard by the 2008 financial crisis, which wiped out trillions of investments used to pay retiree benefits. Since then, many private plans have recovered those losses and are on a more solid footing.

But multiemployer plans—which typically cover smaller companies and unions—face a different set of financial challenges. Declining union enrollments, for example, mean there are fewer active workers to cover the cost benefits for retirees, many of whom are living longer than expected than when these plans were established.

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Multiemployer plans also face the added burden of their pooled pension liabilities. When one member of the plan fails to keep up with contributions, the burden on the other members increases.

That's why, critics of the latest fix argue, restoring the PBGC fund by raising premiums could backfire, further accelerating the demise of multiemployer pension plans.

Under the Employee Retirement Income Security Act, an employer who abandons a multiemployer plan has to make a one-time payment capped at twice its required annual contribution. When one member of the employer group leaves, the liability for paying benefits to workers covered in the plan falls to the remaining employers in the group, increasing their costs.

So raising premiums could simply spark an exodus of employers willing to pay the termination fee to dodge their pension costs.

Without a fix, the PBGC says some 200 plans will run out of money over the next two decades. When a plan goes bust, the agency steps in and pays benefits directly—but those payments are capped at $12,870 a year for a worker retiring at age 65. That amounts to a loss of about $4,000 a year for the average worker with 30 years, according to the PBGC

The cap is much higher—$59,318 a year—for workers in single-employer pension plans, which are covered by a separate PBGC program that is on a much-better financial footing.

Those plans have roughly three times as many participants and are backed by a larger pool of plan sponsors.

With its funds dwindling, the PBGC has been warning for years that it may run out of funds unless Congress comes up with a fix.

Last year, the PBGC reported that its program backing multiemployer plans was $5 billion in the red. It projected that—unless Congress acted—there was "about a 35 percent probability" its assets would be exhausted by 2022 and "about a 90 percent probability" by 2032.

Pension rights advocates agree that Congress needs to fix the insurance fund. But the latest proposal could set a precedent for retirees covered by pension plans that aren't in financial trouble.

"This last-minute backroom deal would, for the first time, amend the pension law to allow the earned vested benefits of retirees to be cut," said AARP Senior Vice President Joyce Rogers. "Retirees don't deserve to receive a bad deal, in which they've had no say, cut behind closed doors and excluding the very people who would be impacted most."