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Trustees of financially distressed multiemployer pension plans would be allowed to cut participants' benefits to prevent the plans from becoming insolvent under legislation given final congressional approval Saturday.
The multiemployer provisions, part of a sprawling $1.1 trillion spending bill, H.R. 83, cleared the Senate Saturday on a 56-40 vote. That action followed the House narrowly passing the measure Thursday night on a 219-206 vote.
President Barack Obama said he will sign the bill.
The congressional action was hailed by a multiemployer pension plan trade group.
“Passage of these reforms is a landmark moment for the 10.5 million employers, workers and retirees who are now one big step closer to having their retirement security restored," Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Pension Plans in Washington, said in a statement. “After more than three years of hearings, meetings and negotiations between unions and employers and members of Congress, passage of these reforms means multiemployer pension plans will get the tools they need to head off insolvency and preserve benefits for decades to come.”
Earlier, following the House vote, an organization representing plan participants, strongly criticized lawmakers.
“It is a travesty, that in the year of the 40th anniversary of the landmark private pension law, ERISA, the House has swept away a fundamental and sacred principle of the law: that once a retiree has begun receiving a pension, it cannot be reduced unless a plan runs completely out of money,” Karen Friedman, executive vice president of the Pension Rights Center in Washington, said in a statement.
Under the legislation, benefits could be cut if a plan is projected to become insolvent during a current plan year or any of the next 14 years, or any of the next 19 years if the plan's ratio of inactive participants to active participants exceeds 2-to-1 or if the plan is less than 80% funded.
Participants would have to be given the right to vote on cuts before the benefit reductions could be implemented. However, even if participants rejected the cuts, if a plan is “systemically important” — meaning that it poses a very large risk to the Pension Benefit Guaranty Corp., the federal agency that guarantees participant benefits — the U.S. Treasury Department could override the vote, permitting implementation of a benefits suspension plan.
Certain participants would be shielded from benefit cuts, including retirees age 80 and older and those receiving disability benefits under the plan. Retirees between ages 75 and 79 would face smaller benefit cuts than retirees under age 75.
In addition, benefits could not be reduced to less than 110% of the benefit guaranteed by the PBGC. Currently, the maximum annual benefit guaranteed by the PBGC to participants in multiemployer plans is $13,000 for a participant with 30 years of service.
Effective next year, the legislation also would double the premiums multiemployer pension plans pay the PBGC to $26 per participant. The current premium is $12 per plan participant, and prior to the legislation was scheduled to rise to $13 per participant.
The multiemployer provisions were assembled, in a rare act of recent congressional bipartisanship, by Reps. John Kline, R-Minn., the chairman of the House Education and the Workforce Committee; and George Miller, D-Calif., the panel's ranking minority member.
The two lawmakers' action came after numerous warnings that congressional action was necessary to prevent the collapse of the PBGC insurance program that guarantees benefits to participants in failed multiemployer plans.
The most recent warning came last month when the PBGC said the looming insolvency of several large multiemployer plans led to a huge rise in the deficit in the agency's insurance program covering the plans. The deficit leaped more than fivefold, rising to $42.4 billion in fiscal 2014 from $8.3 billion the prior year.
That more-than-$40-billion tab is about 400 times what the PBGC collects in insurance premiums from the nation's more than 1,400 multiemployer plans, which have about 10.4 million participants, the overwhelming majority of whom are retirees and other former employees.
The PBGC itself said it expects 173 plans to become insolvent and need money from the agency to pay participants' benefits.
The U.S. Government Accountability Office earlier warned that without congressional action, the PBGC's insurance program would run out of money in the next 10 to 15 years.
In fact, one plan, the Central States, Southeast and Southwest Areas Pension Fund in Chicago, has more than $17 billion in unfunded benefits and has reached a point where legislative action is needed to avoid insolvency, its executive director, Thomas Nyhan, told a congressional panel last year.
The Pension Benefit Guaranty Corp. said Tuesday it has paid out more than $284,000 — the first of what will be millions of dollars in payments — to cover benefits for 365 participants in two insolvent multiemployer pension plans.