(The opinions expressed here are those of the author, a columnist for Reuters.)
By Mark Miller
CHICAGO, May 12 (Reuters) - Should the pension of a retired truck driver - or his widow - be cut by one-third or more because the plan is in trouble?
Doing no harm to current retirees is a basic tenet of sound retirement policy, as well as basic fairness. But U.S. legislation passed in 2014 opened the door to the possibility of cutting retiree benefits. The Multiemployer Pension Reform Act of 2014 (MPRA) was an attempt to head off a looming implosion of multiemployer pension plans. These are traditional defined benefit plans jointly funded by groups of employers - typically in industries like construction, trucking, mining and food retailing.
MPRA allows troubled multiemployer plans to seek government permission to make deep cuts to the future pensions of workers - and even for current retirees - if they can show that cuts would prolong the life of the plan. In theory, that would stave off plan failures - and a possible meltdown of the broader federally sponsored insurance program that backstops the plans.
Last week, the U.S. Treasury sent a clear message to pension plan sponsors: not so fast. It rejected an application by the financially troubled Teamsters' Central States Pension Fund to cut benefits, saying that the fund had not met certain MPRA hurdles. Treasury said the plan failed to demonstrate that the cuts were properly estimated to avoid plan insolvency, and that it did not distribute cuts equitably or explain the actions to plan participants in a way they can understand.
This was a major test case for MPRA. Central States, which covers 400,000 participants, claimed that the plan would become insolvent within 10 years without relief on its obligations. An estimated 40 percent of participants seeing reductions would have lost 30 percent or more of their benefit. The sharpest cuts would have been borne by so-called orphans - retirees from companies that have exited the plan. Older and disabled retirees would have been exempted.
CELEBRATION
Treasury's decision had pension advocates celebrating. A coalition that includes unions, AARP and the Pension Rights Center (PRC) have been fighting the law since its passage. A grassroots network of workers and retirees has made their voices heard at demonstrations. And at a series of town hall meetings around the country, Kenneth Feinberg - the well-known mediator who is overseeing MPRA applications for Treasury - got an earful from outraged Teamster retirees and workers.
As he should have. Allowing cuts to current retirees flies in the face of one of the basic tenets of the Employee Retirement Income Security Act of 1974 (ERISA), which prevents cuts for retirees in most cases. "The most harsh way to deal with a problem like this is to take retirees and substantially cut their benefits," said David Certner, legislative policy director at AARP.