Until recently, retirees entitled to pension benefits under retirement plans from multiple employers could rest assured that their benefits could not be cut by plan trustees unless plan assets were exhausted, mainly because ERISA (the federal Employee Retirement Income Security Act) made it illegal for trustees to do so. But in December 2014, all that changed. The provisions of a year-end bill called the Multiemployer Pension Reform Act of 2014, which was slipped into the $1.1 trillion Omnibus Spending Bill, allow trustees of at-risk plans to suspend benefits if they can show this would prolong the life of the plan.

Now there is a precedent for allowing retiree benefits to be cut. One question that remains to be answered is whether this will lead to a slippery slope of other solutions in the future. Let’s back up to how this happened.

Multiemployer pension plans typically cover a specific industry such as construction, trucking, mining and food retailing. They are collectively bargained, jointly funded by groups of employers, and administered by a board of trustees. According to the Department of Labor, there are 1,427 multiemployer defined benefit plans covering 10.5 million participants with $431 billion in assets. All of these plansare partially insured by the federal PBGC (the Pension Benefit Guaranty Corporation), which steps in if the plan’s assets are exhausted, although it guarantees benefits at a much lower level than the plans themselves provide.

The purported reason for the controversial Multiemployer Pension Reform Act of 2014 is that many multiemployer pension plans are in serious financial trouble, and they threaten to bring the PBGC down with them. An estimated 1.5 million persons were covered by plans in danger of failing over the next two decades, including the Teamsters’ Central States fund and the United Mine Workers of America fund. The plans in total are subject to an $8.3 billion deficit that is projected to hit nearly $49.6 billion by 2023. This puts at risk the PBGC, which is currently running a deficit in its multiemployer program of over$42.2 billion.

As a result of these troubling conditions, a coalition of multiemployer pension plan sponsors and some major unions developed and promoted a package of proposed reforms known as Solutions, Not Bailouts, and in essence this package became the Multiemployer Pension Reform Act of 2014.

The Act creates a new plan status known as critical and declining status for plans likely to become insolvent in the next 15 to 20 years. The trustees of plans meeting the requirements of this status can apply to the U.S. Treasury Department to suspend benefits for retirees and reduce accrued benefits for active workers. The trustees must demonstrate that they have taken all reasonable measures to forestall insolvency and that the proposed benefit suspension will ensure solvency. If these requirements are met, then the trustees mayreduce benefits, even for current retirees, to 110 percent of what the PBGC guarantee would offer. In addition to determining the size of the benefit reduction, plan trustees make the decision on how to allocate the cuts. For example, they can cut retirees’ benefits more than those of active workers. But benefits for disabled plan participants and retirees older than 80 are protected and reductions of benefits for people between age 75 and 80 have to be phased in.

The trustees, however, cannot cut benefits entirely by themselves. First, U.S. Department of Treasury officials have 225 days to approve a plan’s application for benefit reductions, which must show how cuts would affect all plan participants. In addition, plan participants must vote on proposed changes unless the plan poses a high degree of risk to the PBGC, defined as a claim of $1 billion or more. This would seem like a significant degree of protection. Buta majority of all workers and retirees in a plan – not just a majority of the ones who vote – is required to block cuts. And some argue the right of approval is an illusory protection for retirees.

Because the new provisions puts at risk retiree benefits which had previously been protected, many retiree groups and some unions are in staunch opposition to the new provision. They argue that other alternatives were not seriously considered and that retiree’s perspectives were given enough weight. Finally, they say, any new law that allows potential cuts in benefits should be phased in over time rather than taking effect immediately, so people can adequately plan for the future.

But the reforms had bipartisan support on Capitol Hill, as well as from many employer and labor trustees who were in search of permission to fix their endangered plans. Proponents argued that if a plan failed, the benefits would be cut anyway, so it made sense to give the trustees of at-risk plans a tool to stabilize their plan before it failed. Many also argued that this was a necessary step to shore up the PBGC.

If you are a retiree who expects his/her benefits from a multiemployer pension plan, contact Kilgore & Kilgore today. Our employment benefits attorneys are ready to evaluate your situation. Call us today at (214) 969-9099 or email dem@kilgorelaw.com to set up a free review of the facts of your case with a Dallas employment benefits lawyer.