The Washington Post reports that the Treasury Department is on the verge of approving an application from the Central States Pension Fund – a plan that covers Teamster truckers in several states – to cut worker pensions by an average of 23 percent, and even more for younger retirees. Over 250,000 truckers and their families would be affected. Workers over 75, or those who have acquired a disability, would be exempt from the changes.
The bill that enables this — known as the “CRomnibus” because it was partially a continuing resolution to fund the government (CR) and partially an omnibus spending package to fund other parts of the government for a full year — was littered with riders, non-budget changes in law that attached themselves to the legislation like barnacles to a ship. These riders included the elimination of an entire section of Dodd-Frank derivatives regulations (as written by Citigroup lobbyists) and a large increase in the donation limits to party committees.
Despite the riders, Obama endorsed the bill and even whipped for its passage, assisted by JPMorgan Chase CEO Jamie Dimon.
The pension changes in the CRomnibus enable trustees of multi-employer plans — union-negotiated pension benefit funds that cover employees across entire industries like trucking or construction — to apply to the Treasury Department to cut benefits for current retirees in order to stretch the fund’s resources. This changed the ban on cutting such benefits written into the Employee Retirement Income Security Act (ERISA) of 1974, which governs private-sector pension plans.
There were no public hearings on this change to pension law, and the details were only made available days before the vote. The bill’s sponsors, Republican John Kline and now-retired Democrat George Miller, insisted that the rider was necessary to extend the life of the pension plans through collective sacrifice. Roughly 150 to 200 multi-employer plans covering 1.5 million workers face significant fiscal strains that could cause a drain on funds in the next 20 years.
But Michael Hiltzik of the Los Angeles Times warned in 2014 that “panicky trustees — usually union and employer representatives — could act prematurely, cutting the income of retirees who can’t make it up from other sources.”
The Central States Pension Fund was the first to take advantage of the law and apply for a benefit cut. The trustees deemed this necessary to extend the solvency of the fund, which could otherwise run out by 2025. Investment losses during the financial crisis, increased numbers of retirees, and fewer companies contributing to the plan put the fund in precarious financial straits.
Retirement security advocates fear that the Central States decision will trigger a number of other pension funds to use the new law to shirk obligations made to workers for decades. Three other pension plans have already applied to make benefit changes.
The Treasury Department’s main criterion for approving Central States and other pension funds’ plans is that they extend the solvency life of the fund. Since cutting benefits would do so by definition, approval is fairly likely.
One safeguard — a vote of approval on any pension changes by both active workers and retirees — may not save Central States pensioners. The Post writes, “even if a majority of the members vote against the proposal, the pension fund is so large that the Treasury Department may still be required to implement the cuts.” That’s because the Treasury has an obligation to protect the Pension Benefit Guaranty Program, the government entity that aids bankrupted pension funds.
Treasury has a deadline of May 7 to announce its decision. Cuts to retiree paychecks would begin July 1.
Sen. Bernie Sanders introduced legislation last year to repeal the CRomnibus rider that allowed for the pension cuts. “We made a commitment 40 years ago to workers in this country that companies will never renege on a pension promise,” Sanders said in a statement accompanying the bill. “We need to restore that commitment.”
Teamsters Union retirees protest cuts to their pension benefits on April 14, 2016, at the U.S. Capitol.
Author: David Dayen