The Treasury Department is poised to decide whether to approve a plan for the Central States Pension Fund that would significantly reduce benefits for hundreds of thousands of current and future retirees.
If the cuts are approved, they would be the first benefit reductions the Treasury signed off on under the Multiemployer Pension Reform Act (MPRA) of 2014, which allows pension funds headed toward insolvency to petition the department to cut benefits.
{mosads}Under the rules, the cuts would become effective around July 1. The beneficiaries can vote on whether to accept the plan, but the Treasury could overrule a vote to reject the cuts if the department determines that they are necessary.
The average benefit reduction for all participants in the plan, which covers members of Teamsters unions, would be 22.6 percent, but the proposed cuts to Central States would lower benefits by as much as 40 to 70 percent for some people. By law, the fund can’t reduce benefits for those who are disabled or at least 80 years old.
Central States trustees said the plan is necessary to make sure that workers and retirees don’t stop receiving benefits altogether.
They said in a letter to Congress members in February that annual payments exceed contributions by more than $2 billion, and that the fund is expected to become insolvent in about 10 years. The funding shortfall is due to trucking deregulation and economic downturns, according to the trustees.
“While painful, without additional funding the Fund’s proposed rescue plan is the only realistic option to save the Fund from financial failure and help ensure it is able to continue to pay benefits to all participants and beneficiaries in the future,” Central States trustees said.
But the plan has drawn opposition from beneficiaries and lawmakers.
At a Senate Finance Committee hearing in March, Rita Lewis, the widow of a retired Teamster, said that because of the cuts, she was going to have to sell her house and would not be able to help pay for her grandchildren’s college education. Last month, thousands of retired Teamsters held a rally at the Capitol to protest Central States’ plan.
A bipartisan group of lawmakers has sent letters to the Treasury asking the department to reject the Central States application.
Earlier this week, a group of Democratic senators introduced legislation that would cut and then freeze the compensation for executives at pension funds whose benefit cuts have been approved. A news release on the bill said that the top executive at Central States made almost $700,000 in 2014.
Lawmakers have also introduced other legislation to make changes to the MPRA, which was slipped into an omnibus spending law in December 2014. The MPRA was intended to help prevent the Pension Benefit Guaranty Corporation (PBGC) from going bankrupt if large pension plans like Central States defaulted, and to prevent benefits from dropping all the way to the levels guaranteed PBGC if a default were to occur. But the law is controversial.
Sen. Bernie Sanders (I-Vt.), who is seeking the Democratic presidential nomination, introduced a bill that would reverse the provision in the MPRA that allows pension plans to petition to cut benefits. To guarantee benefits, the plan would create a fund for retirees whose employers left a plan or went bankrupt. The fund would be paid for by closing tax loopholes for the wealthy.
Sen. Rob Portman (R-Ohio) has sponsored a bill that would make participants’ votes on proposed cuts binding. In other words, cuts could only occur if a they were approved by a majority of pension fund participants who voted.