4 Ways Congress Just Screwed Up Pensions

When the Senate approved the omnibus spending bill to prevent the government from shutting down, it also delivered a blow to some retirees who collect pensions. In a little-discussed provision of the bill, certain multi-employer pension plans were given the go-ahead to reduce pension checks to current recipients by up to 60 percent. Didn't see that coming, did you?

Here are four ways Congress just screwed up pensions:

1) It broke a sacred trust.

There is a fundamental and sacred principle of the law that says once a retiree has begun receiving a pension, it cannot be reduced unless a plan runs completely out of money, said Pension Rights Center Executive Vice President Karen Friedman. The provision approved by Congress allows pension plans that are projected to run out of money in 10 to 20 years to start distributing less now in order to extend the plan's life.

Many of today's retirees -- the ones impacted -- likely won't even be alive when their pension plan's assets might be depleted in 10 to 20 years. So how fair is it to ask them to bail out someone else's bad business decisions? Not fair at all.

Major retiree groups -- including AARP -- have warned that this could lead to disaster. In fact, "disaster" is precisely what business columnist Michael Hiltzik of the Los Angeles Times called the measure in a column criticizing the pension provision and saying it needed a fuller airing before a change of this magnitude was made.

AARP also called on Congress to find some other way to preserve the solvency of multi-employer pensions before betraying the promise -- enshrined in federal law for four decades -- that vested pension benefits would not be cut.

2) The reach of this change may be wider than first meets the eye.

While 1.5 million retirees is nothing to sneeze at, it's possible that this new provision could snowball. Multi-employer pension plans are the retirement plans negotiated by a union with a group of employers typically in the same industry -- like trucking and mining, two big industries that operate under multi-employer plans and will be impacted by this change. There are more than 10 million workers and retirees in 1,400 multi-employer plans, according to the Pension Rights Center. Not all of them are projecting losses -- yet. What happens if and when they do?

Also, this change may open the door to all pension funds -- multi-employer or not -- to roll back on promised distributions to shore up their solvency. In that case, even more retirees could be impacted.

3) Fund trustees -- who you can't sue over these cuts -- were put in charge of deciding who gets what.

The Pension Rights Center says that retirees who are age 80 or over, or are receiving a disability pension, won't be subject to these benefit cuts. Retirees ages 75-79 will see smaller cuts than retirees under age 75.

But outside of that, plan trustees have substantial discretion about how to allocate the cuts, according to the AARP. For example, the trustees could cut retirees' benefits more than those of active workers, and decide whether to reduce survivors' benefits. Retirees who are harmed cannot challenge the trustees' actions in court, even if those actions are arbitrary and capricious, or contrary to the interests of plan participants, an AARP spokesman told The Huffington Post. That's because this new congressional measure exempts the trustees from being fiduciaries when deciding whose benefits get cut, so retirees can't sue under the normal fiduciary claims.

Oh, and there is no provision for automatic restoration of lost benefits if a plan's funding status improves.

4) What's good for the goose should be good for the gander.

Notice that Congress didn't cut its own pension. Enough said.

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