The Department of the Treasury is facing mounting pressure over a proposal to cut retirement benefits for hundreds of thousands of union workers.
Hurtling toward insolvency, the Central States Pension Fund is looking to slash benefits by an average of one-third in order to prevent the program from running out of money in the coming years.
But the International Brotherhood of Teamsters, whose members make up the largest chunk of Central States’ more than 400,000 participants, is fighting the benefit reductions.
With lobbyists from both sides ratcheting up their efforts, the Treasury Department has until early May to make a decision. Approving Central States’ petition could set a precedent allowing for benefit reductions for some 10 million retirees who participate in other multiemployer programs.
”We don’t have time to play chicken with these people’s retirements,” Thomas Nyhan, executive director of Central States Pension Fund, told The Hill in an interview.
“We have to act now,” he added. “If we don’t get the plan implemented by 2016, I think the pension will reach the point of no return.”
Central States projects the pension will run out of money by 2026. It blames the crisis on thousands of “orphan” retirees whose companies have gone out of business and no longer contribute to the pension, even though they still receive benefits.
The fund pays out $2 billion each year in benefits, more than it receives from employer contributions, a loss it says is unsustainable.
The proposed pension cuts would take effect July 1.
But James Hoffa, general president of the Teamsters, argues that the Treasury plan amounts to “pulling the rug out from under” hundreds of thousands of retirees.
“Pension fund participants and beneficiaries did not cause the problem of underfunding,” Hoffa wrote in a letter to Central States. “They worked day in and day out to earn their pension credits. It is monstrously unfair that they will end up holding the short end of the stick.
“Simply to wipe out those earned benefits in order to balance the books is tantamount to highway robbery,” he added.
Central States says retirees would see their pensions reduced by an everage 22.6 percent across the board. But because one-third of beneficiaries would be exempt from the cuts, the rest of the plan’s participants would face higher reductions averaging closer to 34 percent.
By law, Central States cannot reduce the benefits of people who are disabled or 80 years of age and older.
But the Teamsters claim the reductions could be much steeper.
In a letter to Central States, the Teamsters point out that the average reduction will be closer to 40 percent, and some beneficiaries’ pensions drop by as much as 65 percent.
“This is disturbing,” the Teamsters wrote.
If Central States continues down the path toward insolvency, however, retirees will see their pensions disappear by 2026, Nyhan argues.
“It’s a way lesser evil than having the plan face insolvency,” he said.
Historically, retirees were shielded from pension cuts by federal law, but Congress overturned those protections last December as part of a larger government funding bill. The action was the result of a compromise struck between Democrats and Republicans looking to stave off a retirement crisis.
The Multiemployer Pension Reform Act championed by House Education and the Workforce Committee Chairman John Kline (R-Minn.) and former Rep. George Miller (Calif.), who was the top Democrat on the committee, was hailed as a breakthrough.
The Kline-Miller legislation gives the Treasury Department 225 days to review Central States’ rescue plan and determine whether it is eligible for benefit reductions. If the Treasury approves, the pension’s beneficiaries would then get a vote on whether to accept the plan. The Teamsters are concerned that the Treasury could override the vote, though, if beneficiaries reject the cuts but the government determines they are necessary.
Treasury officials pointed to a blog post written by Kenneth Feinberg, who as “special master” for the Treasury Department is tasked with overseeing the process.
“We’re committed to ensuring an open and fair process,” said Feinberg, who was previously appointed by the federal government to oversee compensation payments to victims of the Deepwater Horizon oil spill and 9/11 terrorist attacks.
“We understand that any reductions in benefits resulting from this application under the Kline-Miller law will have a real impact on people’s lives.”
The Teamsters are furious the Kline-Miller legislation passed without so much as a hearing and are pushing to roll it back. The labor group supports legislation from Sen. Bernie SandersBernie SandersDemanding transparency and fairness from Trump tax plan Overnight Energy: Trump orders review of national monuments, claiming ‘egregious abuse’ Dem rep: Trump's tax plan as believable as 'magic, unicorns or Batman' MORE (I-Vt.), a presidential candidate, that would bailout dying pension funds.
Supporters say Sanders’s bill would save the pensions of millions of retirees by closing $30 billion worth of tax “loopholes” enjoyed by the wealthy.
The money would breath life into the Pension Benefit Guaranty Corporation (PBGC), which serves as the federal government backstop should Central States or another multi-employer pension fund go bankrupt.
As it stands now, the PBGC is projected to run out of money long before Central States becomes insolvent, leaving retirees without protection. If it were fully funded by Congress, as Sanders’s plan calls for, pensions would no longer need to cut benefits to avoid insolvency.
“If Congress can bail out Wall Street, certainly we ought to be able to rescue the pensions of retirees and workers around the country,” said Warren -Gunnels, a longtime Sanders staffer.
The Teamsters and Sanders have both questioned the urgency of cutting pension benefits as opposed to taking more time to pass legislation that would boost the plans with taxpayer dollars.
“They’re going to allow employers to cut pension benefits of retirees and workers today to solve a crisis that may or may not occur 10 to 20 years down the road,” said Gunnels, the minority staff director for the Senate Budget Committee, on which Sanders is the ranking member.
But Central States argues the Keep Our Pension Promises Act introduced by Sanders in June is unlikely to pass in a Republican-dominated Congress that is fundamentally opposed to any more bailouts. It currently has only five Democratic co-sponsors in the Senate.
“We too hope [Sanders’s legislation] passes,” he said. “If it does, we will be the first in line to roll back any pension benefit cuts.”
But Nyhan also warned that it’s not a realistic option.
“Time is quickly running out for the pension fund,” he added. “If we invest time in pushing [Sanders’s plan] without submitting a rescue plan, as our losses continue to grow, then a year from now, after the bill fails, the pension plan will have reached the point where it can no longer be saved.”
This story was updated at 11:58 a.m.