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Kline-Miller: Making Tough Choices to Improve Solvency for Retiree Plans

Monday, December 15, 2014

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The spending bill that passed the House last week included a bipartisan provision, proposed by House Education and Workforce Committee Chairman John Kline (R-MN) and senior Democratic Member Rep. George Miller (D-CA), that would allow certain underfunded pension plans to reduce benefits that were promised to retirees. While cutting already-earned pensions is a bad outcome, allowing these cuts may actually head off bigger ones in the future.

Prior to this legislation, multiemployer plans – defined benefit pensions formed between a union and several employers – have not possessed authority to reduce benefits to retirees. Given that many of these plans are severely underfunded, their beneficiaries often face dim outlooks.

When a multiemployer pension plan becomes insolvent, its retirees fall onto the Pension Benefit Guaranty Corporation’s (PBGC) insurance – but, somewhat in contrast to its name, the multiemployer pensions that it guarantees are actually very modest. Specifically, PBGC provides a payment of less than $13,000 annually to an employee aged 65 with 30 years of service; it offers even lower guarantee levels to employees with shorter tenures.

The Kline-Miller proposal allows benefit cuts by multiemployer plans that are projected to become insolvent and to need the PBGC’s guarantees within the next 15 years. Those cuts cannot go below 110 percent of the PBGC’s guarantees.

Most importantly, plan participants still earning benefits and retired beneficiaries must vote to allow cuts before they happen. The Kline-Miller proposal doesn’t allow plan trustees to cut benefits at whim, but it does allow them to make their best case to plan members. Additionally, the proposal does not under any circumstances allow benefit cuts for disabled and the most elderly pension recipients.

Another section of the legislation addresses the perilous trajectory of the PBGC’s multiemployer trust fund. Multiemployer plans covered by PBGC pay insurance premiums, but the amounts have proven insufficient and PBGC’s multiemployer fund is projected to be insolvent sometime in the next ten years. Kline-Miller would increase the premiums paid on a per-participant basis. The increases, combined with fewer plans turning to PBGC’s insurance, will help delay the possibility that retirees in failed plans get nothing at all, which could result from trust fund insolvency.

Cutting retiree pensions is never something to celebrate, but the Kline-Miller proposal is one that will serve to protect more benefits than the current broken system ever will.

Alex Gold served as a policy analyst for BPC’s Economic Policy Project.

KEYWORDS: COMMISSION ON RETIREMENT SECURITY AND PERSONAL SAVINGS, PENSION BENEFIT GUARANTY CORPORATION, JOHN KLINE, GEORGE MILLER, HOUSE EDUCATION AND WORKFORCE COMMITTEE