Long-Retired Employees See Fully Vested Pensions Drastically Cut by Multiemployer Pension Reform Act

The Multiemployer Pension Reform Act of 2014 (MPRA) was signed by President Obama on December 15th as part of a last-minute deal approved by lawmakers as they were leaving town for Christmas break. The MPRA allows funds to cut benefits for workers and current retirees if the plan is 20% or more underfunded. In other words, Congress and the President have allowed workers who are fully vested in their retirement funds to take a financial hit for union managers who failed to keep pensions fully funded. At least those over 75 years old are exempt.

The new law, a bi-partisan effort from pro-union Rep. George Miller (D-Ca) and anti-union Rep. John Kline (R-Mn) enables multiemployer plans to make deeper cuts to pensions than the 2006 Pension Protection Act allowed. More dramatic cuts to the accrued benefits for current workers and cuts to the benefits already being paid to retirees are permitted. Affected retirees could have their pensions cut by as much as 60%.

According to some, Randy G. DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans said, “After 2000, the markets didn’t start to perform very well. When the dot-com bubble burst, we started working with Congress on the 2006 PPA, which introduced some tighter constraints on plans and protected employers against unexpected contribution increases and excise taxes. That was helpful but we thought it was not going to work out in the long run. We were looking back in history and there was not three consecutive years in the markets like there were from 2000 to 2002 since the 1940’s. We believed the economists that this would be a once-in-a-lifetime experience, but then six years later we’re back in the soup in 2008 with the Great Recession.”

The MPRA was enacted after the Pension Benefit Guaranty Corp., which protects pensioners when their plans fail, reported that its funding deficit soared $8.3 billion last year to a staggering 42.4 billion. The government is allowed to enter pension plans into “critical and declining status” if they are projected to become insolvent in the next 15 years, or in the next 20 years if the plan is less than 80% funded, or if the inactive to active participants exceed a 2-to-1 ratio. Entering such status enables the government to dramatically reduce paid benefits to plan participants even before the plans fail. And that’s exactly what a lot of long-term retirees are quickly learning.

Matt Austin is a lawyer based in the Columbus, Ohio office of Roetzel & Andress, LPA who limits his practice to representing employers dealing with labor, employment, and OSHA matters. You can call Matt at (614) 723-2010 or email him at maustin@ralaw.com.