WASHINGTON – Thousands of Minnesotans stuck in failing multiemployer pension plans would still face cuts in their retirement pay under a new Republican plan to fix the ailing system. But those cuts would be much smaller than retirees face without Congressional intervention, the proposal says.
Roughly 22,000 state residents vested in the struggling Teamsters Central States Pension Fund have been warned of cuts up to 70% of promised benefits as Central States careens toward bankruptcy.
Multiemployer pension reform envisioned in a plan led by two powerful Republican senators would pare those cuts back to no more than 19%.
The proposal outlined by Sen. Charles Grassley of Iowa, chairman of the Senate Finance Committee, and Sen. Lamar Alexander of Tennessee, chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, offers the latest GOP fix to a crisis that threatens the financial security of 1.3 million older Americans living largely on fixed incomes.
Those facing cuts in pension benefits and did nothing wrong feel betrayed by Congress.
Alternative pension reform legislation passed the Democrat-controlled House in July. It uses government bonds to finance low-interest loans instead of benefit cuts to allow at-risk pension plans to rebuild themselves.
“We still feel there is no reason that we should have to give anything up,” said Steve Baribeau, a 69-year-old retired Teamster facing a 47% cut in his Central States pension.
Baribeau, who lives in St. Paul, drove trucks for six companies and contributed to the Central States fund for 27 years. The legislation passed by the House is not a bailout because pension plans must pay back the loans, Baribeau said.
Democratic Sen. Tina Smith of Minnesota believes pension reform is about keeping promises. “The fact that Senators Grassley and Alexander put [a proposal] together shows urgency,” Smith told the Star Tribune.
But Smith, who served on a 2018 bipartisan commission charged with finding a solution to the underfunding of more than 100 multiemployer pensions, expressed concern that the GOP-run Senate would opt for a plan that makes pensioners pay for problems they did not create.
Multiemployer pensions allow people who worked for several employers to contribute to a single pension fund.
Companies withdrew from many of these plans, leaving dozens of pension funds taking in far less from active workers than they must pay out in retiree benefits. At the same time, withdrawing companies sometimes failed to pay prescribed withdrawal penalties.
Those underpaid withdrawals created “orphans,” workers who remained in multiemployer pensions while their employers stopped contributing to the plans.
To save the majority of plans, Grassley and Alexander want retirees in “critical and declining” pension funds to take a 10% cut in benefits and then make a 10% premium copay on the remaining benefit. So a person getting $1,000 per month would see his or her retirement pay go down to $900 per month. In addition, retirees in underfunded pension plans would have to make a monthly payment to the Pension Benefit Guaranty Corp. from their benefits, which can be as high as 10% in the most financially stressed plans. In this example, that could be an additional $90 reduction in income. So the net loss of income would total $190 per month, 19%.
In exchange, the federal Pension Benefit Guaranty Corp. (PBGC) would take over some of the plan’s liability.
Republicans say that pension reform should minimize taxpayers’ financial risk and require sacrifice from those pensioners who benefit the most from having their pension plans saved.
The Pension Rights Center, a national worker-advocacy group, said the Republican plan provides a “framework” for badly needed bipartisan negotiations. But the center strongly opposed 19% benefit cuts, calling them a “nonstarter.”
Those cuts put an onus on retirees like Lonnie Millin. The 65-year-old ex-truck driver from Hudson, Wis., contributed for years to the Central States Fund. He had a stroke in July 2018. He faces a 62% benefit cut without pension reform. Still, he says a 19% cut will hurt him critically. He supports the House reform bill, which he says preserves benefits and ultimately costs less than what Grassley and Alexander propose.
If benefit cuts become inevitable, Millin wants them made “across the board.”
As the debate continues, the imminent insolvencies of plans such as the United Mine Workers and Central States, the largest troubled plan, move dangerously close to creating a national crisis that substantially lowers fixed incomes of more than 1 million retirees who have few if any ways to make up for the loss.
The number of plans facing bankruptcy will also bankrupt the PBGC, which guarantees a minimal payment to workers whose pension plans fail.
Smith believes Republicans and Democrats need to recognize that reform must come quickly and involve compromises on both sides. “I don’t think any of us should be dogmatic,” the senator said.
Stumbling blocks remain. Every multiemployer reform involves a level of taxpayer risk. Meanwhile, retirees did nothing to warrant the punishment many will receive.
The Republican plan is “well intentioned,” said Scott Buchanan, a lawyer who runs the Upper Midwest Pension Rights Project in Minneapolis, which helps retirees and employees approaching retirement. “But what it seems to do is shift the burden from management [of the pension plans] to workers.”
Any compromise reform approved in both chambers of Congress will not just need to shore up benefits. It will need to rescue the Pension Benefit Guaranty Corp., both sides agree.
Republican reform envisions increasing premiums companies and unions pay to PBGC from $29 per worker to $80 per worker in order to preserve the federal program and increase maximum benefits. It also changes the way pension plans calculate and collect liabilities from companies that leave multiemployer plans. Other reforms include the way pension funds estimate returns from investments and project benefits.
At his home in St. Paul, Baribeau knows reform must come in order to avoid a national financial crisis. For now, though, he clings to hope that he can still get what he paid for.
“The Grassley-Alexander bill is like they are trying to catch us at a bad time,” he said. “They want us to think we have to settle for this or not get anything.”