What Retirees Need to Know about the New Federal Pension Rules
Mark Miller / Reuters
Dec. 18, 2014
Only a small percentage of retirees are directly affected by the new rule.
But future legislation may lead to more pension cutbacks.
The last-minute deal to allow retiree pension benefit cuts as part of the federal spending bill for 2015 passed by Congress last week has set off shock waves in the U.S. retirement
Buried in the $1.1 trillion “Cromnibus” legislation signed this week by President Barack Obama was a provision that aims to head off a looming implosion of multiemployer pension plans—traditional defined benefit plans jointly funded by groups of employers. The pension reforms affect only retirees in struggling multiemployer pension plans, but any retiree living on a defined benefit pension could rightly wonder: Am I next
“Even people who aren’t impacted directly by this would have to ask themselves: If they’re doing that, what’s to stop them from doing it to me?” says Jeff Snyder, vice president of Cammack Retirement Group, a consulting and investment advisory firm that works with retirement plans.
The answer: plenty. Private sector pensions are governed by the Employee Retirement Income Security Act (ERISA), which prevents cuts for retirees in most cases. The new legislation doesn’t affect private sector workers in single-employer plans. Workers and retirees in public sector pension plans also are not affected by the law.
Here are answers to some of the key questions workers and retirees should be asking in the legislation’s wake.
Q: Cutting benefits for people who already are retired seems unfair. Why was this done?
A: Proponents argue it was better to preserve some pension benefit for workers in the most troubled plans rather than letting plans collapse. The multiemployer plans are backstopped by the Pension Benefit Guaranty Corp (PBGC), the federally sponsored agency that insures private sector pensions. The multiemployer fund was on track to run out of money within 10 years—a date that could be hastened if healthy companies withdraw from their plans. If the multiemployer backup system had been allowed to collapse, pensioners would have been left with no benefit.
Opponents, including AARP and the Pension Rights Center, argued that cutting benefits for current retirees was draconian and established a bad precedent.
Q: Who will be affected by the new law? If I have a traditional pension, should I worry?
A: Only pensioners in multiemployer plans are at risk, and even there, the risk is limited to retirees in “red zone” plans—those that are severely underfunded. Of the 10 million participants in multiemployer plans, perhaps 1 million will see some cuts. The new law also prohibits any cuts for beneficiaries over age 80, or who receive a disability pension.
Q: What will be the size of the cuts?
A: That is up to plan trustees. However, the maximum cuts permitted under the law are dramatic. Many retirees in these troubled plans were well-paid union workers who receive substantial pension benefits. For a retiree with 25 years of service and a $25,000 annual benefit, the maximum annual cut permitted under the law is $13,200, according to a cutback calculator at the Pension Rights Center’s website.
The cuts must be approved by a majority of all the active and retired workers in a plan (not just a majority of those who vote).
Q: How do I determine if I’m at risk?
A: Plan sponsors are required to send out an annual funding notice indicating the funding status of your program. Plans in the red zone must send workers a “critical status alert.” If you’re in doubt, Snyder suggests, “just call your retirement plan administrator,” Snyder says. “Simply ask, if you have cause for concern. Is your plan underfunded?”
The U.S. Department of Labor’s website maintains a list of plans on the critical list.
Q: How quickly would the cuts be made?
A: If a plan’s trustees decide to make cuts, a notice would be sent to workers. Snyder says implementation would take at least six months, and might require “a year or more.”
Q: Am I safe if I am in a single employer pension plan?
A: When the PBGC takes over a private sector single employer plan, about 85% of beneficiaries receive the full amount of their promised benefit. The maximum benefit paid by PBGC this year is $59,320.
Q: Does this law make it more likely that we’ll see efforts to cut other retiree benefits?
A: That will depend on the political climate in Washington, and in statehouses across the country. In a previous column I argued that the midterm elections results boost the odds of attacks on public sector pensions, Social Security and Medicare.
Sadly, the Cromnibus deal should serve as a warning that full pension benefits aren’t a sure thing anymore. So having a Plan B makes sense. “If you have a defined benefit pension, great,” Snyder says. “But you should still be putting money away to make sure you have something to rely on in the future.”
Burger King is in merger talks with Canada-based Tim Hortons restaurant chain (known for its coffee and donuts) in order to become a Canadian company and thereb…y lower its U.S. taxes. BK’s profits have been flat, mainly because its mostly lower-income customers don’t have enough money to boost sales. So the pending deal is welcome news to investors, who today sent its stock up nearly 20 percent. But it’s a lousy deal for you and me and other Americans because we’ll have to make up for the taxes Burger King stops paying.
We’re already subsidizing Burger King because it refuses to raise the pay of its frontline workers, who are now at or near the minimum wage. So we’re paying for the food stamps, Medicaid, and wage subsidies its workers need in order to stay out of poverty. That means when BK deserts America to cut its tax bill, we’ll be paying twice. That’s a whopper of a slap at America. What should we do about it?
Income gap widens as American factories shut down
Once mighty, now a Monopoly property: How manufacturing’s decline widens the wealth gap
By Michael Rubinkam, Associated Press
7 hours ago
Income gap widens as American factories shut down
READING, Pa. (AP) — In August 2008, factory workers David and Barbara Ludwig treated themselves to new cars — David a Dodge pickup, Barbara a sporty Mazda 3. With David making $22 an hour and Barbara $19, they could easily afford the payments.
A month later, Baldwin Hardware, a unit of Stanley Black & Decker Corp., announced layoffs at the Reading plant where they both worked. David was unemployed for 20 months before finding a janitor job that paid $10 an hour, less than half his previous wage. Barbara hung on, but she, too, lost her shipping-dock job of 26 years as Black & Decker shifted production to Mexico. Now she cleans houses for $10 an hour while looking for something permanent.
They still have the cars. The other trappings of their middle-class lifestyle? In the rear-view mirror.
The downfall of manufacturing in the U.S. has done more than displace workers and leave communities searching for ways to rebuild devastated economies. In Reading and other American factory towns, manufacturing’s decline is a key factor in the widening income gap between the rich and everyone else, as people like the Ludwigs have been forced into far lower-paying work.
It’s not that there’s a lack of jobs, but gains often come at either the highest end of the wage spectrum — or the lowest.
“A loss of manufacturing has contributed to the decline of the middle class,” said Howard Wial, an economist with the Brookings Institution and the University of Illinois at Chicago. “People who are displaced from high-paying manufacturing jobs spend a long time unemployed, and when they take other jobs, those jobs generally pay substantially less.”
Globalization, automation and recession destroyed nearly 6 million manufacturing jobs between 2000 and 2009. In Pennsylvania, between 2001 and 2011, 258,000 middle-income factory jobs were lost. At the same time, Pennsylvania added jobs at the lower end of the wage spectrum — in health care and social services — and at the highest end, in sectors like management and finance.
Berks County, of which Reading (pronounced REH’-ding) is the county seat, is a mirror of that larger problem.
Decades ago, Reading was a mighty manufacturing town where the Reading Railroad — once the world’s largest company, now a spot on the Monopoly board — built a 19th-century transportation empire, and factories produced everything from hats to hardware. At one time, the city boasted so many manufacturing jobs that you could quit one, cross the street and easily land another, longtime residents say.
“You made a very, very good middle-class living. You could get a new car every couple years, send kids to college,” recalled Ed McCann, Berks County’s longtime director of workforce development.
Honda automotive engine plant in Anna, Ohio
An associate is seen working in the connecting rod area during a tour of the Honda automotive engine …
Then the factories shut down. The wealthy fled to the suburbs, their grand Gilded Age mansions carved up into apartments, and poor immigrants moved in. Now Reading, population 88,000, is one of the nation’s neediest cities, with more than 40 percent of its residents living in poverty, up from 19 percent in 1990.
As poverty grew, so too did the gap between the rich and everyone else. The difference between the income earned by the wealthiest 5 percent in Berks County and by a median-income household rose 13.2 percent in 20 years, according to the U.S. Census Bureau. Nationally, the wealth gap became even more pronounced, increasing 15.8 percent.
Six years after David Ludwig lost his factory job, the couple have exhausted their retirement savings. They don’t go out to eat or spend on their grandchildren.
Barbara, 56, said she has applied for more than 200 jobs since January and gotten one offer, as a shipping clerk, for $7.50 an hour. She has lost 40 pounds, blaming it on the stress.
“I don’t mind wearing the big baggy clothes, but just to put money aside to buy one or two bras because I lost too much weight, I couldn’t even do that. It sounds silly, but it’s true,” she said.
The toll can also be seen at the Greater Berks Food Bank. It distributed 7.2 million pounds last year, up from 2.5 million pounds in 2001, and the food bank plans to move into a larger building to accommodate the surging demand.
The latest wave of plant closures, beginning around the turn of the millennium, hit companies like Dana Corp., Agere Systems, Luden’s, Glidden and Baldwin Hardware. Some 9,300 jobs evaporated between 2001 and 2011 — nearly a quarter of Berks County’s manufacturing base, according to Penn State economists Theodore Alter and Theodore Fuller. They were replaced by jobs in lower-wage sectors like education and especially health care, a phenomenon that has played out around the state and nation.
“The manufacturing sector was decimated, and the people who had those skills had no place to go,” said Karen Rightmire, a longtime United Way official who now runs the Wyomissing Foundation, a private philanthropy outside Reading. “The days of the factory job that just required a strong back are gone.”
Nationally, manufacturing declines accounted for 40 percent of the increase in joblessness from 2000-2011, according to labor economist Erik Hurst. And the middle class was hit hardest.
For high-income college graduates, “It doesn’t look like there was a recession,” said Hurst, of the University of Chicago. “For lower-skilled (manufacturing) workers, the recession comes along, you get a big decline in employment, and it hasn’t rebounded at all.”
The jobs picture isn’t entirely dark. Manufacturing is still the No. 1 employer in Berks County, led by battery maker East Penn Manufacturing Co. and a specialty steel company. Economic development officials say they’ve seen a recent uptick in factory hiring, and graduates of local technical career programs are virtually guaranteed a job. Berks County has placed a huge bet on worker training, launching a “Career in 2 Years” marketing campaign that encourages people to become certified in high-skilled manufacturing fields like precision machining and robotics.
But not everyone has the aptitude or desire.
Vicki Henshaw serves on a rapid-response team that helps laid-off factory workers. She said they are typically older, with high school diplomas and outdated skills.
“You know the struggle they are going to have to even come close to the wage they were receiving,” said Henshaw, executive director of labor-affiliated United Community Services in Reading. “You look at them and you feel the despair. Their lives are now in utter turmoil.”
While the manufacturing picture has brightened a bit nationally — with the U.S. adding hundreds of thousands of jobs in recent years — it’s an open question whether the sector is truly making a comeback or the gains are merely cyclical following the recession.
Brian Waldbiesser, for one, isn’t betting on a manufacturing renaissance.
The 41-year-old father of two saw little choice but to go back to school after losing his $19.50-an-hour job at battery maker Exide Technologies, where he had put in 19 years. After a year of unemployment, he is struggling to pay the bills, and he no longer considers himself middle class.
Waldbiesser, who has tapped a federal program for workers hurt by foreign competition, is studying psychology — and psyching himself up for better times.
“I don’t want this to be a sob story about me,” he said. “What I would like for people to take from my story is that even though I am struggling, and it is radically different from where I was, if you seize the opportunities that are in front of you, there are opportunities out there to better yourself.”