A pension fund in Cleveland became the first plan to approve benefit cuts for current retirees — even though it is still years away from running out of cash. The move, some critics say, could open the door for other troubled pension plans to follow suit.
The financially strapped Iron Workers Local 17 Pension fund proposed a plan for extending its lifespan
by reducing benefits for workers and retirees. Now that the plan has received final approval, roughly half of the 2,000 participants will see their pension benefits shrink on Feb. 1. Benefits will be cut by 20 percent on average, but some retirees are expecting their monthly payments to be slashed by as much as 60 percent.
The unprecedented move comes after a 2014 law made it possible for troubled pension plans to
reduce benefits to retirees if it would improve the financial health of the fund. The legislation dealt a major blow to federal protections that for nearly 40 years guarded the financial promises made to retirees.
The announcement stunned some former ironworkers, many of whom said they sacrificed time with family and other opportunities so that they could earn a secure income stream in retirement. Joe Finley, 63, said he regularly worked 12 hours a day and took weekend shifts so that he could earn more credits for his pension. Now, his monthly check is set to be reduced to $1,900, from the roughly $3,500 he was previously receiving. The lost income is about equal to his monthly mortgage payment, causing Finley to worry that he may have to put his three-bedroom home on the market.
“This is the devastation that I knew was coming, but I just couldn’t wrap my mind around it,” Finley said after learning the news. “You play by all the rules … and then they pull the rug out from under you.”
The fund’s proposal was first green-lighted by the Treasury Department late last year before being put up for a vote by members this month.
The impact will vary based on the individual’s work status and age. About half of the participants are not going to see any cuts at all because of their age or a disability. Others will see minor reductions. But more than 300 participants will see their checks cut by between 30 and 60 percent. Some people who took advantage of an early retirement option are among those facing the steepest cuts.
Some critics say the divide in outcomes may have ultimately pinned workers, who could have felt they were choosing between a smaller pension and no pension at all, against retirees who feel they have few options for making up the lost pay.
More than half of the 1,938 people eligible to vote did not cast a vote. About 16 percent, or 300, voted against the cuts. Another 600 members voted in favor of the changes.
“I’ve been sort of sitting here staring off in the distance,” said Larry Burruel, 68, who is expecting his pension check to be cut in half. “We’re going to have to make a lot of cuts,” said Burruel, who is worried he and his wife will struggle to afford their medical bills with the smaller paycheck.
The leaders of the ironworkers fund said making cuts now could prevent the need for more dramatic reductions in the future. Without changes, the ironworkers fund was on pace to run out of cash by 2024. At that point, the plan would have had to rely on the federal insurance program meant to protect multiemployer plans. But that program is also facing steep shortfalls and is on track to run out of money by 2025.
“The suspension plan, while reducing their pensions now, is a better alternative than letting the pension fund become insolvent,” the trustees of the fund said in a statement.
The ironworkers make up only a small portion of the roughly 1 million workers and retirees in pension plans that are on track to exhaust funds within the next two decades, according to the Pension Benefit Guaranty Corporation, which insures private pensions. The Central States Pension Fund, one of the largest multiemployer pension plans in the country, became the first fund to apply to cut benefits under the law with a proposal that would have affected nearly 300,000 current and retired truckers. But Treasury rejected that application in the spring, saying the changes would not be enough to save the financially struggling fund.
Some pension advocates said they worry that the approval of the cuts in Cleveland could open the door for other financially struggling pension plans to follow suit.
“Retirees … performed dangerous work counting on the promise of their pensions,” said Karen Ferguson, director of the Pension Rights Center. “It is simply wrong that after their years of backbreaking work, they have been left out in the cold.”
Ferguson and other consumer advocates argue that rejecting the cuts would have given lawmakers more time to come up with another plan for shoring up pension funds. Sen. Sherrod Brown (D-Ohio), who is critical of the cuts, called on Congress to find a long-term fix. “Too many retirees across Ohio face uncertainty over the benefits they’ve earned,” he said. “We need to work on a bipartisan solution to protect Ohio workers from the mistakes made by those managing their funds.”