Congress's $1.1 trillion spending bill, passed last week, contains a troubling provision for U.S. retirees, one that slashes the promised retirement benefits of millions of workers. The knee-jerk reaction: Fear that it could set a dangerous precedent and lead to more widespread cuts in retiree pension benefits. Is that realistic? Here's what it really boils down to.
Is my pension going away?
Maybe not right now. But a provision in a $1.1 trillion spending bill could set a scary precedent. It would allow the promised pension benefits of up to 1.5 million workers and retirees to be cut. It would affect the pooled pension plans -- called multiemployer plans -- of mostly union workers across a bunch of companies, where it looks like the plans won't be able to cover full benefits in coming decades.
Does this mean private pensions are in danger, too -- the relative few that still exist?
The 31 million people in so-called single employer plans wouldn't be affected by the bill. The bigger fear is about the 10 million workers and retirees in pooled plans. Ten to 15% of those workers are in plans that may need to make cuts.
How painful will the cuts be?
A retiree with a pension of $24,000 per year and 25 years of service could see his or her annual benefit cut in half, according to the Pension Rights Center. Not all the troubled pensions would need to cut that deeply.
Is anyone safe from the cuts?
Retirees age 75 and older would be protected from some benefit cuts, and so would disabled retirees.
How many people still have pension plans, anyway?
In the last 15 years, the portion of the U.S.'s largest companies offering defined-benefit pensions to new workers has fallen from 60% to 24%, estimates Towers Watson. Private companies have been cutting pension benefits by freezing new workers out of plans -- but haven't been cutting benefits for people who were in the old plans.
But my company's pension plan assets aren't mingled with any other plan. So I'm safe?
Maybe. Nothing in the bill affects pooled plans that are in good financial shape, or any of the plans offered by single employers. But the moves by the plans will break promises that employers made to their workers, Karen Friedman of the Pension Rights Center told Bloomberg earlier this year. “It's going to lead to a society where nobody can depend on anything.”