Summary of the pension cutback provisions in the Kline-Miller amendment
December 11, 2014 -- Today, the U.S. House of Representatives will vote on the sole amendment added to the Omnibus spending bill. It allows trustees of certain multiemployer pension plans to cut the benefits of retirees. The following is a summary of the retiree cutback provisions in the amendment:
- The legislation permits deep pension cuts to retirees in certain financially-troubled multiemployer plans. Financially-troubled plans are plans that are expected to not have enough money to pay 100% of benefits in 10 to 20 years. In some cases, the cuts could exceed 60% of a participant’s benefits.
- Retirees who are age 80 or over, or are receiving a disability pension, are not subject to benefit cuts. Retirees ages 75-79 are subject to smaller cuts than retirees under age 75.
- The cuts are made by plan trustees, who are typically more aligned with active workers and contributing employers, than with retirees.
- Plan trustees have discretion in deciding how to allocate the cuts. For example, they can cut retirees’ benefits more than those of active workers, and decide whether to reduce survivors’ benefits.
- Plan trustees are exempt from fiduciary responsibility in making cuts. Retirees who are harmed cannot challenge the trustees’ actions in court, even if those actions are arbitrary and capricious, or contrary to the interests of plan participants.
- Trustees’ decisions to cut benefits can only be reversed by the Department of Treasury, and then only if the Treasury determines that the trustees’ decision to cut benefits or the extent of the benefit cuts is “clearly erroneous.”
- There is no provision for automatic restoration of lost benefits if a plan’s funding status improves.
- UPS retirees in the Central States Teamsters plan are given special protection: their benefits are last in line to be cut. This provision is reportedly the result of a last-minute deal that will save UPS an estimated $2 billion that it would otherwise have been contractually be required to pay to its retirees.
- Plans with 10,000 or more participants must allow all participants to vote on cuts before they are implemented. However, this right is illusory. First, a majority of all workers and retirees in a plan – not just a majority of the ones who vote – is required to block cuts. Thus, a vote to block cuts fails even if 100% of those voting oppose the cuts, if only 49% of participants actually vote. Moreover, ballots can be distributed by e-mail, which means that retirees who don’t use e-mail or who lack internet access might not find out about or be able to vote.
- Even if all participants vote against cuts, the Treasury Department can override the vote and uphold the trustees’ decision to make cuts, if it concludes that a plan poses a “systemic” risk to the Pension Benefit Guaranty Corporation (the federal pension insurance program).
- The insurance premiums that multiemployer plans pay to the PBGC are increased from $13 to $26 per participant per year. In contrast, premiums paid to the single-employer plan program are between $57 and $475 per participant per year. The benefits guaranteed by the single-employer program are four times the maximum benefits guaranteed by the multiemployer program.
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Does this special deal for UPS include all UPS Central States Retirees going back before 2007.
