all the negative financial surprises that can hit in
retirement, learning a "guaranteed" pension
could be severely cut is among the worst.
the Treasury Department recently held a hearing on
implementing a new law that allows pension cuts in
troubled multi-employer pension plans covering about 10
million workers, Wisconsin retirees Bob Brockway and Bob
Amsden tried to contemplate how they’ll respond when
that day comes. They are members of one of the most
financially strapped plans, the Central States Pension
of these plans could face cuts of 30 to 65 percent in
their monthly pensions under the new federal law if
their plans get close to insolvency and their fellow
union members vote to approve the cuts to keep them from
completely failing. The plans have been losing members
as labor unions wane. Meanwhile, benefit obligations
74, could potentially face smaller cuts because those
over 75 at the time the reductions are made take smaller
reductions. Retirees 80 and older are exempt.
63, has been delaying claiming Social Security benefits,
living on his $3,000-a-month pension in order to qualify
for his full Social Security benefit at age 66. He said
he will have to abandon that plan if the cuts happen
soon. During his 32-year career driving trucks for
companies participating in the Central States plan,
Amsden said he took several pay cuts as one employer
after another would go out of business and he started
over on the seniority scale. The security of the pension
was a big factor in keeping him from moving on, he said.
is going to be a big hit," Amsden said of the
pushed into claiming Social Security early could be a
six-figure hit to pensioners’ retirement, said Tim
Wyman, managing partner with the Center for Financial
Planning, an advisory firm in Southfield, Mich., with a
substantial number of clients in union retirement plans.
(Most of them are former teachers or auto industry
workers not subject to the changes in multi-employer
absurd to think you can cut an existing retiree’s
benefit like that and have them just continue on,"
Wyman said. "Not only is the pension being cut but
by taking their Social Security benefit early, that
could be $150,000 or more over the course of
retirement" that they will forgo over the rest of
their lives by taking reduced benefits, he said.
experts say the changes are unlikely to spread to
single-employer plans because those plans are better
funded and carry higher federal insurance protection
through the Pension Benefit Guaranty Corp.
the trend in pension freezes, where a company plan stops
accruing benefits for current employees, continues. Just
this month, United States Steel Corp. and insurer
American International Group said they will freeze plans
at the end of the year.
Pension Rights Center director Karen Ferguson said the
retiree cuts in multi-employer plans establish a
"dangerous precedent that could lay the foundation
for cuts in earned pensions well beyond the
they’re better than allowing the plans to completely
fail, concludes Jean Paul Aubrey of the Center for
Retirement Research at Boston College.
is a floor, so the people with the lowest benefits who
are already close to the poverty level won’t see big
cuts. We found that the system as a whole is better off
with the cuts" because they sustain the plans, he
said. "Because it’s unlikely the government will
step in and save these plans, this is the next best
future generations of retirees, Aubrey is heartened by
several states’ plans to begin requiring employers
without 401(k) plans to offer workplace-based IRAs. The
accounts would automatically enroll employees with a
default payroll deduction into the savings plans.
would have to fund the plans without help from their
employers, and there would be no guarantees on how much
income the accounts would generate in retirement, but
workers would at least know that from the start rather
than being surprised down the road.