There's been one crucial question hanging in the air since Congress passed legislation last month allowing certain financially distressed pension plans to cut benefits for current retirees, reversing four decades of precedent: Which plans might actually move to cut benefits under the new law?
This much was known: The law applied only to multi-employer plans, pooled retirement funds that support the pensions of unionized workers, many of whom are solidly working class. They include truckers, miners, supermarket clerks, custodians and construction workers. Under the law, plans that were in critical and declining condition could choose to go through a process, including a vote by members, to trim retirement benefits. The idea behind the legislation is that by trimming benefits, the plans could save themselves from failing altogether. If plans become insolvent, members are left to rely on federal pension insurance, which, when it comes to members of multi-employer plans, is itself dangerously underfunded and offers only meager benefits for former workers.
The new law defines critical and declining plans as those projected to become insolvent over the next 15 years. It also includes those plans projected to be insolvent over the next 19 years that meet one of the following criteria: a ratio of inactive to active members greater than 2 to 1 or the plan is less than 80 percent funded.
Boston College’s Center for Retirement Research has taken a crack at figuring out which pension plans fit that definition by analyzing the available public information about pension plan kept by the Department of Labor. It is anybody's guess when the plans could start actually cutting benefits, although many analysts expect some of the them to begin moving soon to maximize the impact of any reductions.
The center’s list of plans that could cut benefits is by definition a rough estimate because it assumes that pension plans have not taken action to attack their funding shortfalls in recent years by, for example, increasing contributions to the pension fund. For that matter, it does not account for the possibility, however remote, that a fund had a banner investment year that lifted it out of imminent danger. It also does not consider plans whose financial conditions have eroded since they last filed their financial information with the government. In addition, the financial information on file with the federal government is often two or more years old.
With those limitations in mind, among some of the biggest funds in danger of reducing benefits identified by the Boston College team were: the Teamsters 411,000-member Central States pension fund, which has nearly five retirees for every active employee; the Bakery & Confectionery Union & Industry International Pension, which has 114,000 members and more than three retirees for every active worker; and the Automotive Industries Pension Plan, which has 26,331 members and more than five retirees per active member.
Also on the researchers' list was the United Mine Workers Workers of America 1974 Pension Fund. That plan is considered so impaired that it could not fix its financial problems by simply cutting benefits under the new law, in part because the benefits are not very generous to begin with, Boston College researchers said. The plan has 115,00 members and nearly 10 retirees for each active worker.
Here is the list of plans that could be eligible to enact benefit cuts under the new law:
Correction: A previous version of this story incorrectly listed the number of Automotive Industries Pension Plan members. The right number is 26,331.