Retirement Planning: Congress Allows Some Pension Benefits to Be Cut — Even Benefits for People Already Retired

You’ve probably seen it in the movies. A worker reaches retirement and the company presents him or her with a gold watch and a nice, comfortable pension. That kind of security makes devoting years of your work life to a single company or industry worthwhile.  The peace of mind that a pension affords might not be as secure as you’d thought.

As part of a massive spending bill, the House and Senate have passed a solution that could potentially cut the retirement pension benefits of millions of workers — even those who are already retired.  The law, used to prohibit pension cuts on people who are already retired.

Who is Affected by the Proposal?

The Congressional proposal permits any multi-employer pension plan that could lose funding within the next 10 to 20 years to act with cutbacks on benefits to current and future retirees. Many plans are already in trouble. With more retirees to cover, longer lives of those covered and an economic downturn, the government agency, Pension Benefit Guaranty Corporation, is overtaxed and low on funds.

Multi employer pension plans are plans where a group of businesses in the same industry have joined together with unions to provide pension coverage.

Workers in many industries could be affected by the cuts. Union workers, such as truck drivers, make up a large portion of those who are at risk. But any multi-employer pension that’s already in trouble would have the ability to reduce benefits dramatically. According to CNN Money, that’s about 10 percent of all multi-employer plans and over a million workers and retirees.

Retirees 80 years old and above, as well as pensioners who are disabled, are safe from pension cuts under this plan. For those who fall into the 75 to 80 year range, there could be cuts, but they will not be as severe as for people under 75, who will shoulder the toughest changes.

How Deep are the Pension Cuts?

The effect of the cuts will vary by plan. CNN Money says the cuts might not necessarily be dramatic, they estimate that plans might only need to trim benefits by about 10 percent to protect the plan from becoming insolvent.

Why Are the Rules Changing?

Without any cuts, workers and retirees alike could ultimately see the plan they’ve contributed to and counted on disappear because the funds just aren’t there anymore.

What Can You Do to Protect Your Retirement?

Chances are, you’ve heard it said that no one can count on Social Security to pay out when you retire. The same can be said for pensions. While Social Security and pensions do help improve your retirement income, depending on either one as a sole source of funds after you retire is a risky endeavor.

If you have or are expecting a pension, here are a few steps you should consider  now:

• Is Your Pension a MultiEmployer Pension?:  First find out if your pension is a multi employer pension and subject to the new congressional ruling that enables promised benefits to be cut.
• Check Funding Statements: Your employer (or former employer) is required to provide you with annual funding statements.  These are financial statements showing the status of your pension plan.  According to the Wall Street Journal, a healthy funding range is 85% to 100%.  (Meaning that the plan has funds to cover at least 85% of their obligations.)
• Know Your Rights: The Department of Labor has a wealth of pension information on its Web site. Find information on defined benefit and defined contribution plans.If you want to speak directly with someone at the Employee Benefits Security Administration division of the DOL about your pension, call (866) 444-3272.
• Diversify: Diversification is the safest way to plan for retirement. The future is uncertain so planning for different scenarios is important.  Ideally your retirement income is provided to you from a range of sources: your own savings — in a diversified portfolio, Social Security, a retirement job, use of  home equity and/or pensions. Taking your retirement into your own hands allows you to control how much risk you’re willing to take on. And it frees you from living your post-retirement life based on whether your pension even has a pulse.
• Update and Strengthen Your Retirement Plan: If you’re a younger worker, you’ve got time to experiment, invest, and spread your retirement savings among various plans, such as a 401(k), IRA, and also mutual funds and riskier stocks. If you’re closer to retirement, you can take advantage of catch up contributions with your 401(k) and IRA, which allow you to contribute more than younger workers.

Thorough retirement planning is more important than ever.  You  might consider working with a financial advisor to help you plan for and navigate through a changing retirement landscape. For a more affordable and empowering option, use the Boldin Retirement Planner.