In a major victory for hundreds of thousands of workers and retirees, the U.S. Department of the Treasury on May 6 rejected a request by a huge Teamsters union pension plan to slash benefits in an attempt to remain solvent. About 270,000 members in the Central States Pension Fund, nearly half of them retirees, would have faced benefit reductions of up to 70 percent beginning in July.
As the first application under a 2014 federal law that allows financially troubled multiemployer pensions — typically involving at least one union and more than one employer — to shrink benefits even before running out of money, it was widely viewed as a test of measures open to other struggling funds.
Kenneth Feinberg, the Treasury Department’s special master appointed to review Central States’ application, said the rejected proposal was based on flawed investment assumptions. It didn’t distribute benefit cuts equitably, and notices for workers and retirees weren’t easy to understand. But retirees speaking out at town hall meetings against the cuts also influenced the decision, Feinberg said.
Proponents of allowing severely underfunded multiemployer pensions to cut benefits say this is necessary to extend the life of those plans. The law also prohibits pension reductions for retirees 80 and older and those receiving disability benefits. People 75 to 79 would see smaller cuts than those who are younger.
Central States, on track to run out of money within 10 years, can still submit a revised proposal, and four smaller pension plans have also submitted proposals to cut benefits. If Central States does fail and falls back on the Pension Benefit Guaranty Corp., a federal insurance agency, the benefits paid could be cut more than under its rejected proposal. And no matter what happens to Central States, the federal fund that insures multiemployer pensions is expected to be exhausted by 2025.
For now, Terry Schwinn, 69, of Canton, Ohio, plans to celebrate. A truck driver for nearly 42 years, Schwinn retired in 2011 because of a work-related injury. His Central States pension was slated to be cut in half under the proposed reorganization. But with Central States’ financial problems, Schwinn wants federal lawmakers to help.
“I think [Congress] should work together, Republicans and Democrats, and come up with some solution to get it fixed so we can have some reassurance on our future,” Schwinn said.
AARP opposed the 2014 law and applauded the Treasury Department’s decision. “For the hundreds of thousands of hardworking men and women who have earned their retirement benefits and reasonably assumed their plans were properly funded, this action comes as a major reprieve from devastating pension cuts of 50 percent or more,” Executive Vice President and Chief Advocacy & Engagement Officer Nancy LeaMond said in a statement. “AARP stands ready to continue to work with Congress, the Administration and all of the parties to ensure a more secure retirement for the millions of families covered by multiemployer pension plans.”