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Congress says it has to cut pensions to save them

Congressional legislation would allow cuts in a handful of troubled plans, but critics fear more cuts are next

By Peter Coy | Updated on December 11, 2014
(AP Photo/J. Scott Applewhite)
Dec. 11 (Bloomberg Businessweek) — Joshua Gotbaum doesn’t like telling retirees that their pensions are about to be cut. After all, until August he was the director of the Pension Benefit Guaranty Corp., the federal insurance fund that’s supposed to safeguard pensions. But yesterday Gotbaum interrupted a vacation in Madrid to return my call asking about a bill working its way through Congress that would allow multiemployer pension plans to cut benefits. He’s a huge supporter of the legislation.

“The alternative is that the plans would collapse. It’s reorganize rather than die,” says Gotbaum, a former Lazard investment banker who is now a guest scholar at the Brookings Institution.

On Dec. 9 lawmakers agreed on pension reforms as part of a $1.1 trillion spending bill to keep the federal government from shutting down. Inclusion in that bill almost ensures the provision’s passage. The bill applies to roughly 10 million participants in multiemployer pension plans, typically found in construction, trucking, and other industries in which several employers, often small businesses, negotiate collectively with unions to cover a group of workers in a region. They tend to be in much worse condition than single-employer plans because many of the companies in them have gone out of business, leaving the survivors to pick up the slack for workers who never even worked for them. About 1.5 million of those participants are in plans that could run out of money in the next two decades if nothing is done.

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