The pension checks of an estimated 750,000 American retirees could be reduced if a pension reform proposal gaining traction on Capitol Hill becomes law.
The reform package, drawn up by an employer-worker coalition created by the National Coordinating Committee for Multiemployer Plans, would allow troubled multiemployer pension plans to cut benefits currently being paid to people already retired.
Slashing existing payouts isn't legal under current pension law, except for narrow exceptions with severely stressed plans, according to the Pension Benefit Guaranty Corp., the federal agency that backstops the country's pension plans. The traditional approach to the underfunding problem has been increasing the money employers put into plans, and shrinking future benefits, it said.
About 150 to 200 of the country's roughly 1,400 multiemployer pension plans are projected to become insolvent within the next 10 to 20 years, according to the Pension Benefit Guaranty Corp. (PBGC). Those deeply underfunded plans cover about 1.5 million of the 10 million people in multiemployer pension plans.
The PBGC backs up an additional 23,000 single-employer pension plans, but it is the multiemployer plans that have the most dire problem. The PBGC has not endorsed any reform proposals.
Supporters say the prospect of insolvency for some of largest multiemployer plans requires sharp new measures. Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans, said if plans can act early, they can preserve overall benefits at a higher level for all participants.
"A haircut today is better than a beheading later. That's really what we're looking at," DeFrehn said.
There's a bill in the works, DeFrehn said, and the sponsor will likely be from the House Committee on Education and the Workforce. He estimates that the proposed cuts would typically range from 5 to 35 percent, and would only be allowed for plans in dire straits.
Cutting into the current pension checks of seniors has raised alarms, drawing opposition from AARP and a growing number of labor groups.
AARP legislative council David Certner testified at a congressional hearing last fall that the proposal could reduce the living standard of a median-income retiree to an income barely above the poverty level. "How exactly are these retirees expected to make up that lost income?" Certner said.
Ann Curry Thompson, a pension rights attorney out of Detroit who has worked with the Teamsters, said the proposed cuts might achieve the goal, but on the backs of the most vulnerable.
"It completely erodes promises that were made to individuals who worked for a living, that if they deferred ongoing wage increases in favor of retirement security, that benefit would be there at the end of the road of them," Curry Thompson said. "It should be the absolute last resort."
Curry Thompson will be in the Twin Cities on Sunday speaking about the reform proposals at the Weyerhaeuser Memorial Chapel at Macalester College in St. Paul at 1 p.m.