WASHINGTON – Dave Erickson of Isanti, Minn., believed his pension benefits were guaranteed when he contributed a fixed portion of his pay into the Teamsters Central States Pension Fund.
On Wednesday, Erickson learned that those benefits might be cut under a provision that Minnesota Rep. John Kline aims to tack onto the new federal budget bill.
The measure, which would allow multi-employer pension plans that are underfunded to significantly cut benefits to retirees under age 75, is an attempt to prevent such plans from running out of money.
But Kline’s push to get it into the omnibus budget bill that Congress must pass to keep the government running enraged retirees like Erickson. The provision, which primarily affects major unions’ retirement plans, has never been introduced into the House or Senate on its own.
“They’ve sneaked this in,” Erickson said. “They don’t have the guts to come out and tell us they’re taking our money. It makes me sick. The pension payment was something I counted on.”
Of the nation’s 40 million people in defined benefits pensions, 10 million are in multi-employer plans. Roughly 1.5 million of them currently receive payments from underfunded plans, some of which are within a decade of being insolvent.
Kline said in an interview Wednesday that the financial problems of pension funds are urgent and plans for reforms have been discussed for more than a year. A Republican representing Minnesota’s Second District, Kline said he is protecting pensioners.
He added that including the pension cuts bill in the big budget bill rather than introducing it as a separate bill is necessary to take advantage of existing bipartisan support and the backing of employers and some unions.
Almost everyone — including opponents — expected the measure to be added as an amendment to the budget bill by the House Rules Committee. Wednesday night, the committee defeated an attempt to make the pension bill a stand-alone amendment with a free-standing vote.
Minnesota Rep. Collin Peterson, a Democrat representing the state’s Seventh District, cited the measure as one reason he will vote against the overall budget bill.
“I’ve had it with them legislating in appropriations bills,” Peterson said. “Some people’s pensions could be cut by 50 percent. That’s a pretty big deal.”
The pension benefits battle is not a Republican-Democrat issue or even an employer-union issue. California Democratic Rep. George Miller helped Kline craft the bill allowing cuts.
The Service Employees International Union and several other unions support it. And the Teamsters Central States Pension Fund, which faces insolvency without adjustments in the next decade, was looking for help.
In addition, the federal Pension Benefit Guaranty Corp. (PBGC), which provides benefits if pension funds go broke, could run out of money in the event of a major collapse of pension funds. Even if it didn’t, the PBGC caps its benefits at $13,000 per year.
Workers vs. retirees
In some ways the pension cut issue pits current workers against retirees, with the former hoping pensions will endure in some form and the latter seeking to maintain the income they depend on.
“A robust debate about reform is what is needed,” said Democratic Rep. Keith Ellison, who represents Minneapolis. “We’re doing exactly the opposite of what we should be doing.”
At his home in south Minneapolis, 64-year-old retired truck driver Jeff Brooks said he felt betrayed. Brooks spent 39 years driving, including 20 as a Teamster.
He believes there was time to debate solutions to the Central States Fund problems without ramming through reform. What Kline is doing “seems like a shabby way to handle this,” he said.
Although he would be spared major cuts under the proposed rules, 76-year-old Bob McNattin of Minneapolis echoed Brooks. McNattin said he knows that young workers worry “there will be nothing there when they retire.” But what is happening “is cynical as hell,” he said. “It has a lot to do with why approval of Congress is in single digits.”
Under the proposal, pension funds would have to fall below certain benchmarks of financial security before they could consider major benefits cuts to retirees under 75 and marginal cuts to those between 75 and 80.
Once a plan met the distress test, the pension bill would place the decision to cut benefits in the hands of trustees and workers, not Congress. But it would allow those cuts to go into effect indefinitely.
Until now, preservation of benefits for older Americans living on fixed incomes had been legally and politically sacrosanct.
Kline and Miller defended the bill at a meeting of the House Rules Committee Wednesday, with Kline warning that “further delay makes this harder, not easier.”
Still, advocacy groups such as AARP and the Pension Rights Center cried foul and urged members to call their Congress members.
At the same time, both groups admitted that chances of keeping the pension benefits bill out of the larger budget bill are slim. “This has the blessing of House leadership so it will be hard to stop,” said AARP’s legislative policy director, David Certner.
Karen Friedman, the Pension Rights Center’s policy director, complained that “retirees never had an opportunity to examine or be consulted on the bill.”
The larger problem, she said, is that “this sets a precedent for cutting Social Security and single-employer plans.”