When Ernest Nichols retired in 1978 after 37 years as an asbestos worker, he felt he was set.
He had a $925 monthly pension from Asbestos Workers Local 24, which covers the Washington metropolitan area.
Nichols knew that in 1974, federal law had created an insurance system to guarantee a private pension like his in case the union pension fund got in trouble.
"He felt that it was guaranteed -- it was safe," said his wife, Donna, in a telephone interview.
But things haven't worked out that way. The federal insurance system for pension funds like Local 24's -- the so-called "multiemployer" funds -- has never collected enough money from premiums to pay for all immediate expected claims. So Congress has repeatedly postponed the date when payment of the benefits by the government insuurance plan becomes mandatory. As a result, most workers aren't protected.
Local 24 officials, claiming funding difficulties, have already cut Nichols' pension once.
And a major pension bill expected to pass Congress in the next weeks would allow "multiemployer" funds to cut benefits even more if they get into financial trouble. Nichols could end up with as little as $500 a month.
In many ways the new bill flies in the face of the landmark pension reform bill Congress passed in 1974. That bill's aim was to protect earned pensions by requiring that private pension plans meet certain standards. It also set up a government insurance system to guarantee benefits if a private plan collapsed.
Now, Congress is conceding that there simply isn't enough money at hand to do the job it intended in 1974. Quite a number of older industries with "multiemployer" plans have declined, throwing their pension funds into danger not foreseen six years ago. To guarantee all the benefits at 100 percent would take far larger insurance premiums than anyone is willing to pay, and Congress isn't about to do it out of general revenues either.
So the administration, the unions and employers have come up with a four-part rescue plan to make the insurance system viable: allow big benefit cuts in certain circumstances, force employers who drop out of a plan to pay off their fair share of past liabilities, boost premium rates and make the insurance protection mandatory at long last.
The 1974 law created two separate federal insurance plans to guarantee private pensions.
One covered "single-employer" pension systems -- pensions set up and managed by a single business for its own employes. About 22 million active workers and 4 million retirees are in these pension plans.
The second covered "multiemployer" pension systems, with about 7 million active workers and 1 million retirees. These are pensions in which a union and several different employers set up a single plan for a whole industry -- for example, the garment or trucking industries.
Both federal insurance systems collect a fee from the pension funds for each person in the plan, which goes into an insurance fund to help pay benefits if an individual plan fails.
The "single-employer" system is working reasonably well.
But the "multiemployer" insurance system isn't.
Its biggest problem is lack of money. Its annual insurance premium of 50 cents per participant brings in only $4 million to $6 million in any calendar year.
But there are at least nine "multiemployer" funds in declining industries (like anthracite coal) that are in imminent danger of collapsing and dumping $560 million worth of obligations onto the tiny insurance fund.
Fortunately for the federal insurance fund, Congress left it temporarily optional for the Pension Benefit Guaranty Corp., the federal agency that administers the insurance system, to pay benefits if any "multiemployer" pension system goes broke.
So far it has agreed to pick up monthly benefits only for three small failed "multiemployer" plans, but this uses up all its income. It has refused to take over the benefit obligations of other troubled "multiemployer" plans. These plans are desperately hanging on, awaiting the day when PBGC will be required by law to take them over.
As the law now stands, that day will arrive May 1. Payment of benefits by PBGC for all failing "multiemployer" plans will become mandatory.
But PBGC hasn't the money to do it.
Another big problem: if an employer drops out of a "multiemployer" pension plan that later gets into financial difficulties, he may be able to escape all liability for his fair share of plan obligations. Those who stay in have to pay for everything.
PBGC chief Robert Nagle says this creates a "last-man-out" psychology. As soon as an employer smells trouble, it's in his interest to bail out and leave others to pay.
PBGC's rescue plan for the "multiemployer" insurance system is now moving through Congress and should reach the House floor next week. It increases premiums to raise more money for the insurance fund, allows benefit cuts by shaking pension plans to ease the insurance burden and blocks "last-man-out" bailouts. The congressional versions include these features:
Raise the insurance premium from 50 cents per person per year to $2.60 over nine years (House version). The Senate Labor COMMITTEE VERSION PERMITS &BGC to speed up this schedule to reach $2.60 in five years and even boost it to $3.40 by the 10th year.
Allow trustees of a "multiemployer" plan to cut benefits sharply if it gets into financial difficulties and then have federal insurance guarantee only the reduced amount. (At present, the guarantee is $1,159 a month or 100 percent of the vested benefit, whichever is less.)
The first allowable cutback for a shaky plan would wipe out any pension increase granted by the plan in the past five years. If the plan still looked shaky and lacked enough money to pay current benefits, added cuts could be made -- bigger in the House versions but slightly less in the Senate version as a result of pressure from Jacob K. Javits (R-N.Y.).
A man with a $500 pension under the House Education and Labor Committee version could end up with only $280. One with $300 (with $50 of it coming from an increase in the past five years) could end up with a payment (and PBGC guarantee level) of only $190 in some cases under the House Education and Labor version and $205 under the Senate Labor Committee version. In contrast, under current law the PBGC guarantee would be $300.
Bar a company from escaping liability if the plan fails after it has dropped out. Basically, anyone dropping out of a "multiemployer" plan that later gets in trouble would have to keep paying until his fair share of liability was taken care of.
Although there is general consensus on the bill, Karen Ferguson, director of the Pension Rights Center, is one of the few voices sharply critical.
Instead of solving the problem of lack of guarantee money primarily by raising premiums, she says, the bill is solving it by helping trustees slash benefits and U.S. guarantees -- precisely the thing the insurance system was intended to avert. Pensioners will take a beating, she contends.
A PBGC official disagreed. "Of course we don't like cutting benefits and guarantees. But it's better than what we have now: no mandatory guarantees and no way of paying."