The recent Pension Tweak May Mean Insecurity for All retirees who are either retired or soon retiring with a pension. The new law was part of the recent $1.1 trillion last-minute spending bill that was just passed. Within it are new laws about underfunded multiemployer defined benefit pension plans and allowing the benefit to be reduced even for long retired participants up to age 80.

The targeted critically underfunded multiemployer defined benefit pension plans currently covers about 1 million people. Most people have thought having a pension was the most secure way to retire with guaranteed income coming every month. But things have been changing over the years to undermine that security for both public and private pensions. Public pension benefits appear to be the safest because they are guaranteed by state constitutions. But those in Detroit may disagree with that statement.

Many retirees and near retirees who have a corporate (private sector) pension have developed misunderstandings, sounded alarms and expressed concerns about the recently enacted federal law targeting multiemployer defined benefit pension plans. I want to share this brief report I received from a trusted retiree rights attorney. Hopefully this will clear up some misunderstandings about this new law.

Corporate Retirees Will Not be affected by the Multiemployer Pension Reform Act of 2014

But there are concerns (please keep reading).

As most retirees know, the Pension Benefit Guaranty Corporation (“PBGC”) was created to provide a backstop to pension plans whose employers or industries became unable to support the promised retirement benefits.  During the last several years, the PBGC has continued to face an ever increasing deficit.  In its latest annual report, the PBGC disclosed it is now facing a $62 billion deficit.  The biggest problem lies with multiemployer pension plans that are critically underfunded.

Last month, the PBGC issued a report indicating its multiemployer insurance program was almost certain to become insolvent in 10 years or less.  Out of the 1,400 multiemployer pension plans nationwide, there are about 200 plans involving 1 million participants that are at risk of being terminated.

The PBGC is worried about this situation

Worried because the PBGC becomes responsible for the pension obligations of failed pension plans.

For over a year, the “National Coordinating Committee for Multiemployer Plans”, a special investigatory committee comprised of multiemployer pension plans, unions, actuaries and financial consultants studied the problem. They ultimately published a comprehensive report in February 2013 with concise recommendations for federal legislative changes, so as to deal with the crisis.  See:  NCCMP.org solutions not bailouts talking points

The committee’s report entitled “Solutions Not Bailouts” eventually fostered proposed federal legislation.

On December 13, 2014, Congress passed the “Multiemployer Pension Reform Act of 2014.”  (“MEPRA”).

See:

https://www.pionline.com/article/20141222/PRINT/312229976/multiemployer-plans-can-cut-benefits-to-stay-solvent

MEPRA

MEPRA is part of a comprehensive $1 trillion government funding bill that President Obama signed into law on December 15, 2014.

There is a very controversial provision in MEPRA that gives trustees of deeply troubled multiemployer pension plans the ability to reduce some benefits (including retiree benefits in pay status), subject to various conditions and requirements.  MEPRA becomes effective in January and its primary objective is to deal with multiemployer pension plans that are in critical status (commonly referred to as plans in the “red zone”).

The most noticed and talked about feature of MEPRA, is that when a multiemployer plan is in “declining status”, i.e., less than 80% funded, the trustees of the plan may reduce some benefits, in order to avoid further insolvency. This feature has obtained the attention of social media and, presently, is being greatly misunderstood by many retirees.

Pursuant to MEPRA, the reduction of benefits can only be taken after all other reasonable methods have been taken by the trustees of the multiemployer pension plan so as to forestall and avoid insolvency.

Temporary Pension Reductions

When a decision is made to carry out a “temporary” reduction of benefits involving a multiemployer pension plan with 10,000 or more participants, the trustees must appoint retiree representatives to be advocates for the interests of the retirees.  There must be notice provided to participants, beneficiaries, contributing employers and the respective union representatives.

Also, when a decision is made to carry out a temporary reduction of benefits, the reduced benefit cannot fall below 110 percent of the PBGC guaranteed benefit.  In order to take this action, the trustees of the multiemployer pension plan must seek approval by the Internal Revenue Service (“IRS”).  And, even after IRS approval, the reductions cannot go into effect if a majority of plan participants vote to reject the reduction.

Participants can reject the reduction plan. The IRS can override

However, when the participants and retirees vote to reject the proposed benefit suspension, the IRS, in consultation with the Department of Labor (“DOL”) and the PBGC, must determine whether the multiemployer pension plan is “systemically important” which is defined as resulting in $1 billion or more in projected PBGC liabilities if the plan’s suspensions are not implemented.  In such extreme cases, the IRS, in consultation with the DOL and PBGC, will have discretion to accept the proposed suspension of benefits or modify the proposal in some manner to avoid pension plan insolvency.

Under MEPRA, disability pension and benefits for those over age 80 may not be suspended.   Also, there is complicated formula that gives some protections to retirees age 75 to 80.  And, as the funded status of the multiemployer pension plan improves, the reduced benefits are to be reinstated.

MEPRA does not apply to corporate sponsors of single employer pension plans.

MEPRA only applies to multiemployer pension plans.  Single employer pension plans, such as those sponsored and managed by corporations are subject to a different set of federal regulations and have higher funding-level requirements.

All said, Pension Tweak May Mean Insecurity for All retirees anyway

Nevertheless, it is fair to be critical of MEPRA, as it can only give many retirees a sense that this is a disturbing precedent and that “it’s going to lead to a society where nobody can depend on anything”, says Karen Freidman, executive vice president of the Pension Rights Center.

AARP opposed passage of MEPRA

The AARP stated in a letter to House and Senate members that “this precedent could have a detrimental impact on other earned pension and the overall income security of the nation.”

Predictably there will be many disputes concerning interpretation and operational issues about MEPRA brought by unions and retiree plan participants into the federal courts.

In Conclusion.

Regardless of how you feel about pensions in general, we all know people who worked very long careers to receive their promised benefit.  Many times it comes with a reduced lifetime salary because of that pension benefit. There is little that the employee or retiree can do when their pension plan starts reaching critical underfunding status and this law is there to avoid a total collapse of the PBGC and a huge government bailout because of some mismanaged underfunded multiemployer defined benefit pension plans.

The concern for all pensioners is the precedent being set and the fear that decisions made by corporations regarding funding or not fully funding their pension plans could be the next focus for similar laws. However for now the immediate impact is to those unfortunate 1 million people covered by the critically underfunded multiemployer defined benefit pension plans.

I had struggled to survive 30 years in order to get the pension benefit I was promised in exchange for accepting less than market salary during most of my career. Believe me that having to put up with corporate policies I could not morally support and a take-over by what I will say “I felt” was a corrupt company only supported by the fact the CEO was eventually convicted as a felon and sentenced to prison including some plea-deals from other executives.

My pension benefit was stripped to the lowest level legally possible. Of course there is a soft place in my heart for those who made the same long career journey and now through no fault of their own are going to be short-changed.

Staying and putting up with corporate nonsense as long as I did is the hardest thing that I have had to endure in my life aside from surviving my son’s passing. I say these things knowing full well that it shouldn’t be a burden to the tax payers to make whole but somehow I think there are some highly paid executives, both Corporate and probably Union that lined their pockets by setting policy that created this F’n mess yet nobody who wears thousand dollar and up suits are ever held accountable.

Your perspective, thoughts and comments are welcome.