Provisions to cut certain pension benefits are part of the newly-signed spending bill (Photo: Photographer: Joshua Roberts/Bloomberg Provisions to cut certain pension benefits are part of the newly-signed spending bill. (Joshua Roberts/Bloomberg)

On Nov. 14, the Pension Benefit Guaranty Corp. reported that 200 of the 1,400 multi-employer plans covering 1 million participants are at risk of failing within the next decade. The PBGC is worried about this because it becomes responsible for the pension obligations of these failed plans.

And it has its own financial problems, having just projected a  $42.2 billion deficit for fiscal 2014, a threefold increase from the $8.3 billion deficit predicted just one year earlier.

On Dec. 13, Congress agreed to allow trustees in these multi-employer pension plans to cut benefits so that the plans and the fund that insures them can remain solvent.

On Dec. 15, President Obama signed the $1.1 trillion spending bill that contains this amendment.

Rep. John Kline (R-Minn.), chairman of the Education and Workforce Committee, and retiring Rep. George Miller (D-Calif.), led the bipartisan effort on these reforms, saying that they would help prevent the collapse of failing plans and better protect workers’ retirement security. Randy G. DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans, said that these reforms give pension funds the tools they need to remain solvent. The joint business-union group had proposed many of these ideas in its “Solutions not Bailouts” plan.

Not everyone agreed. Sen. Ron Wyden (D-Ore.), chairman of the Finance Committee, criticized the “last-minute scheme worked out largely in private” for producing a “lopsided solution” that will result in rolling back “a major tenet enshrined in pension law – never take away money a pensioner has already earned.”

Karen Friedman, executive vice president of the Pension Rights Center, said: “We are furious that without debate Congress has placed the burden of rescuing underfunded plans on the people who can least afford it – retirees and surviving spouses who rely on their pensions for food, medication, and other necessities.“ The International Brotherhood of Teamsters criticized the way the changes happened, saying that the legislation represents “substantial changes to policies that have protected the pensions of workers for decades. It should not be changed through procedural manipulation.”

Previous pension reforms have left these vested benefits alone. Pensions for people who had worked long enough to become vested were considered untouchable. This protection had lasted primarily because the Employee Retirement Income Security Act of 1974 established that although plan trustees could cut benefits that workers hadn’t earned, they couldn’t touch the benefits that workers had already earned. ERISA also created the Pension Benefit Guaranty Corp.

Pension plan trustees were prohibited from breaking their promise that a retiree was guaranteed a specific pension for life.

The Multiemployer Pension Reform Act of 2014 changes all of that.

Trustees can now cut benefits for retirees who are under 75. Retirees over 80 and the disabled are protected from any cuts while those between 75 and 79 would be partially protected.

These changes affect retired workers, their families and their surviving spouses, who had a right to receive the retirement benefit for life.

They affect beneficiaries in all states. The largest employers covered are in California, Illinois, Ohio, Indiana, Michigan and Pennsylvania.

They affect some of the nation’s largest industries, including construction, trucking, mining, entertainment and retail trade and services.

In 2014, the Department of Labor notified 77 additional plans that they’re in critical condition, meaning that the plan is less than 65 percent funded and has funding or liquidity problems. One of these plans, the Teamsters Central States, is almost $18 billion short of what it needs to pay benefits to its 400,000 members. (For a list of the multiemployer plans that are critical or endangered, see the Department of Labor.)

Plans that can’t meet their obligations are taken over by the PBGC. The PBGC pays a maximum benefit of just under $13,000 a year for failed plans that it takes over. If too many plans fail, however, the PBGC itself will go out of business.

In 2012, Joshua Gotbaum, director of the PBGC, told Congress that the PBGC wouldn’t be able to pay benefits after 10 years. Gotbaum, now a visiting fellow at the Brookings Institution, said that the PBGC’s current resources were insufficient to support its existing multiemployer plans over time, and “did not dispute” the Governmental Accountability Office’s assessment that the PBGC itself would be insolvent within a decade.

These dire forecasts for both the pension plans and their insurer are largely why Congress enacted the pension reforms – the collapse of a handful of multiemployer pension plans could have bankrupted the insurance plan and potentially all retirement benefits of covered workers.

While these reforms seem to have been necessary to save the multiemployer pension plan system, women are especially vulnerable to these cuts for several reasons.

First, they tend to live about five years longer than men, so they will need retirement benefits for more years. Benefits can’t be cut for those who are now over 80, but any reduced benefit imposed now is likely to extend through a woman’s life.

Second, women work about 12 fewer years than men, so they will have had less time to offset shortfalls in their work-based pension by increasing their contributions to a private retirement plan.

Third, they earn about 23 percent less than men so that not only are their own contributions to a defined contribution plan lower, but so too are any employer matching contributions. Social Security benefits, which are also earnings-based, will be lower than otherwise.

Finally, women often delay saving for retirement. Only 45 percent of the 62 million salaried women working in the United States contribute to a retirement plan, according to the Employee Benefits Security Administration at the Department of Labor.

Women gain one clear benefit from a multiemployer plan for a simple reason.

Many of these plans are “unit benefit” plans that calculate benefits based on years of service, not on salary.  As explained by the PBGC, the amount an employer contributes is set by a collective bargaining agreement that specifies a formula, say $13 per hour worked by each employee covered by the agreement. This means that women aren’t penalized for a lifetime of low earnings.

Thus, a woman who worked for 30 years would receive the same pension as a man with the same work experience, even though she likely earned far less than the man did. She may still be penalized because she works fewer years than a man does, but she won’t be penalized for making less or for living longer than he does.

Other retirement plans, such as single-employer pension plans and 401(k)’s and some defined benefit plans, base benefits on earnings, and thus don’t provide gender pension parity. All else being equal, women can have a larger pension benefit under many multi-employer benefit plans than under other retirement plans.

This means that the changes to multi-employer pension plans could be problematic for a woman working in an industry that relies on a defined pension plan.

Many women work in the industries with a high concentration of multi-employer plans. For example, women account for more than half of food preparation workers, cashiers and personal care providers, according to the Current Population Survey. The retail trade and services industries combined account for one-third of all participants in multi-employer plans.

Plans in these industries aren’t generally listed as in critical condition. But all that could change with another financial crisis, economic slowdown or corporate bankruptcies.

And although it’s true that the dire financial situation of many multi-employer plans meant that Congress had to do something about the law concerning the funding of and benefits paid under this retirement plan, that issue shouldn’t mask the fact that the benefits promised in these plans help women overcome the “gender pension gap” that can put women’s retirement at financial risk.