Steve McEllistrem

The Devereaux Dilemma

Multi Employer Pension Plans

Multi-employer pension plans have been in the news lately, with the actions by the Treasury Department on whether truckers, retirees and their families can have their benefits sharply reduced because the multi-employer plans are short on money.

The Kline-Miller Multiemployer Pension Reform Act of 2014 established a new process for ensuring the financial stability of these multi-employer plans by allowing them, with the approval of the government, to cut benefits to retirees where doing so would improve the solvency of the fund.

These cuts have become necessary for certain employees (and retirees) because the multi-employer pension plans simply don’t have enough money to pay all the promised benefits. But how did we get to this point?

Here’s how: We allowed employers to recoup excess funds from plans they decided to terminate in favor of 401k plans many years ago.

Those earlier plans had made tremendous gains from a booming stock market, and employers decided they didn’t want to pass those gains off to their employees or retirees. So they sought ways to recoup those monies. The solution they came up with was to stop offering defined benefit (pension) plans in lieu of defined contribution (401k) plans.

This allowed all the future rewards and all the future risk to go to employees and retirees rather than the company – seems okay so far, right? Maybe not nice, but not unethical. However, there was still the unanswered question of what to do with all the lovely money that had been made in the past. Employers couldn’t have those gains go to their workers.

So they used IRS rules (which they had fought to implement) to terminate their involvement in multi-employer plans, instead offer 401k plans, and then collect the excess investment profits from their earlier participation. This, they claimed, was only fair. After all, they were the ones who invested the money in the plans in the first place. Never mind that the reasons for doing so included offering lower pay or other benefits to employees to offset the wonderful pensions that would inevitably flow from these generous plans. And never mind that the work of employees built the profits all these companies enjoyed via the stock market.

Once the really rich multi-employer pension plans had been terminated and their profits absorbed by employers, what remained were the weaker companies and plans. Then, once the great recession hit, and even prior to that, companies that couldn’t meet their funding obligations were often allowed to pay only part of what was owed. In other cases, they simply declared bankruptcy and walked away, leaving the Pension Benefit Guaranty Corporation (meaning the US taxpayers) on the hook for unpaid contributions.

Now, with these pension plans in desperate straits, with all those obscene profits from the past long gone into executives’ pockets, some of the plans that remain want to cut benefits to retirees in order to survive.

So the bottom line is the pension plans will survive, but the benefits that workers counted on receiving, planned their retirements around, will not survive to the extent promised. Too bad, suckers. You believed us. You really should learn to stop trusting that what we tell you is true.

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