The Pension Bailout and Retiree Benefits

The Pension Bailout and Retiree Benefits

Many labor unions are under extreme pressure due to trouble meeting it's pension liabilities. This problem specifically effects multi-employer pension plans in which union pension plans pay into a collective, large pension pool. Funds from these plans are sometimes diverted to other projects instead of actually funding the pension liabilities. As a result, the unions are struggling to come up with the money to pay the retiree's deserved benefits. Public pension and retirement plans across the nation, including plans at the municipal, state and federal levels, are facing the largest deficits in years. With the multi-employer pension plans, all pension-contributors are responsible for the pensions of the organizations that withdraw from the plan. With recent stock-market losses, the companies that are willing to pay a penalty to pull out are becoming more frequent and creating a system that has little money but a heavy load of obligations.

Senator Bob Casey of Pennsylvania has proposed a bailout for union pension plan holders, titled the Create Jobs and Save Benefits Act of 2010 (S 3157 IS). The act would shift the pension burden from the unions to the taxpayers via the Pension Benefit Guaranty Corporation. This federally backed corporation funds pension plans that become insolvent or cannot continue to pay out benefits. The corporation is already underfunded and burdened. Under the new act, if the pension plan actuary deems the plan to be heading for insolvency, the plan may be able to be moved to the Pension Benefit Guaranty Corporation. This would take the pension liability away from the union and put it in the hands of the government. After talking to Senator Casey's office, a representative indicated that the plan will, in fact apply to public union pensions, but the exact groups that would be eligible are still unknown as the Senator is still negotiating the matter.

While this bill would clear union balance sheets, there is serious concern about what would happen to a pension once its liability is shifted to the government corporation. The bill has a convoluted formula for benefit payouts after this happens, but a recent Wall Street Journal editorial (2010, August 16.The Next Pension Bailout, The Wall Street Journal, A14) suggests that even current retiree benefits could be limited to just $21,000 a year. This amount is hardly a livable sum of money, especially in light of current increases to the cost of living. While the bill title references “saving benefits”, retirees may actually experience the opposite. In fact, retirees could be greatly harmed if their plan is determined to be failing and is moved to the government, not to mention the added liability (as much as $165 Billion) that would burden the taxpayers.

There is no cause for alarm. One analysis contends that only 3 pension plans would be affected under the current proposed legislation. According to Mr. Casey's representative, it is still unclear which pensions will be eligible to be moved to the Pension Benefit Guaranty Corporation. New York government worker pensions are guaranteed by the New York State Constitution, for years there has been talk of calling a constitutional convention to remove that guarantee. There are no current calls for such a convention. However, if this guarantee is ever removed, New York State employees and their beneficiaries could lose their benefits or become subject to the same conditions under this new act. Many pensions funds across the nation are significantly underfunded due to stock market losses and increases in pension benefit payouts.

I would recommend talking to your pension fund provider to see if any new legislation is pertinent to your plan and to inquire about the financial solvency of the plan overall. Another important concern is health benefits. While New York State pension benefits are constitutionally protected, health benefits do not have that same level of protection. Health benefits often take cuts in times of economic hardship and it is important to watch the impact of any new legislation or health plan changes on your benefits. We are in an economic climate where retiree benefits have been negatively impacted at both the public and private levels. It is important to watch for potential changes to pension benefits and not take them for granted. It is critical to stay in front of these issues so that before any action is taken, we can recognize the signs and ensure that our legislators have heard from us before there is any reduction in benefits.

Our firm will continue to monitor the new legislation concerning pensions, as well as, the calls for a constitutional convention to change public pensions in New York State and will keep you informed of any changes. If any of these issues develop into a serious threat to your retirement and pension benefits, it may be necessary that we corporately make our voices heard. My concern is that both the United States Congress and the New York Legislature which have acted quickly and hastily in past legislation, could now negatively affect your benefits that you have worked years to secure. For more information, feel free to contact this office or talk to your local representatives.
Sincerely,
Rudy Migliore, Esq
Rudolph F.X. Migliore, P.C.
(631) 543-3663