The new spending bill contains a measure that would allow (for the very first time) pension benefits of current retirees to be severely cut. The rule would alters 40 years of federal law and could affect millions of workers, many of them who are part of a shrinking group of middle-income employees (i.e. truckers, construction workers, supermarket employees, etc.)
Earlier, in a 219-206 vote, the House passed the new spending bill that the progressive wing of the Democratic party and the Tea Party wing of the GOP had opposed. The bill, which Obama had been pitching for, later went to the Senate and passed on a 56 to 40 vote.
Senators Elizabeth Warren (D-Mass.), Tom Harkin (D-Iowa), Sheldon Whitehouse (D-R.I.) and Jeff Merkley (D-Ore.) voted against the bill because of the Dodd-Frank provision that allows the banks (once again) to recklessly gamble with other people's money. Here's what Elizabeth Warren had said just before the vote.
The change in the federal ERISA law would apply to multiemployer pensions, where a group of businesses in the same industry join forces with unions to provide pension coverage for millions of employees. The Pension Benefit Guaranty Corp. (PBGC) has warned it may run out of funds unless Congress implements "reforms".
L.A. Times: "Thanks to changes in the workplace, the 2008 crash, and the long recession, many (but by no means most) of these plans are underfunded and in danger of going bust sometime in the next decade or two. In those cases, the pensions will become the responsibility of the federal Pension Benefit Guarantee Corp.
That's a concern for two reasons: First, the PBGC, which also takes over single-employer plans that run out of money, is already in serious financial trouble. Second, although the PBGC guarantees single-employer pension benefits up to about $59,318 a year (as a straight-life annuity for someone retiring this year at 65), the ceiling is much lower for multiemployer plans — for a worker with 30 years of pension credits, the maximum PBGC guarantee is $12,870. (The guarantees are adjusted each year for inflation.) That would be a huge cut for many workers with long years on the job.
To keep many of these plans solvent, the committee is considering a proposal to allow plan trustees to cut retirees' pensions now, many years in advance of any looming insolvency. The benefit cut could be no lower than 110% of the PBGC guarantee, or about $14,150 for that 30-year worker this year.
This would mean gutting the fundamental principle underlying the federal ERISA law governing private sector pensions. "The law says that once a retiree has earned a benefit, it must continue to be paid, until the day the fund is depleted," says Karen Friedman, policy director of the Washington-based Pension Rights Center.
CNBC: "The problem is much more serious than skimming retirement benefits to keep the PBGC on life support," said Richard Greer, a spokesman for the Laborers' International Union of North America. This proposal "would siphon off tens of millions of dollars in hard earned retirement benefits to try and rescue the PBGC." (The Teamsters also denounce the bill).
From the Pension Rights Center: Facts About Multiemployer Pension Plan Funding:
"Multiemployer pension plans are retirement plans negotiated by a union with a group of employers typically in the same industry. Collective bargaining contracts say how much the employers must contribute to the plans for their employees. The plans are run by trustees selected by the union and the employers. The trustees typically determine the amounts that the plans will pay in lifetime monthly benefits. There are more than 10 million workers and retirees in 1,400 multiemployer plans."
Overall, many remain in good fiscal health and would be untouched by the deal. But several dozen have failed, and several other large ones are staggering toward insolvency. As many as 200 multiemployer plans covering 1.5 million workers are in danger of running out of money over the next two decades. Half of those are thought to be in such bad shape that they could seek pension reductions for retirees in the near future.
The Department of Labor has a list of endangered pensions who received critical status notices. From their website:
"Under Federal pension law, if a multiemployer pension plan is determined to be in critical or endangered status, the plan must provide notice of this status to participants, beneficiaries, the bargaining parties, the Pension Benefit Guaranty Corporation, and the Department of Labor. This requirement applies when a plan has funding or liquidity problems or both as described in the Federal law. If a plan is in critical status, adjustable benefits may be reduced and no lump sum distributions can be made. Pension plans in critical and endangered status are required to adopt a plan aimed at restoring the financial health of the pension plan."
The measure in Congress is also outraging retirement security advocates, who argue that allowing cuts to plans paves the way for other cuts for retirees later (as quoted by the Washington Post) "After a lifetime of hard work to earn their pensions, retirees don't deserve to receive a bad deal, in which they have had no say, cut behind doors and excluding the very people who would be impacted the most," said Joyce Rogers, a senior vice president for AARP, the lobbying group for older Americans.
NBC News reports that the deal was reached by the top two members of the Education and the Workforce Committee, Chairman John Kline, R-Minnesota, and Rep. George Miller, D-California. It has the support of labor and business groups and is meant to prevent the government from having to bail out insolvent plans while ensuring that retirees still receive a portion of their benefits. But the banks want the option of having their bailouts.
The stock market crash of 2008/09 could have left many more of these plans underfunded, but the stock markets have since recovered, breaking many all-time record highs over the last two years. But the same spending bill that could endanger pensions, could also allow the banks to trade in the derivative markets again. Currently, under the 2010 Dodd-Frank bill, banks are prohibited from using taxpayer-insured depositor funds (backed by the FDIC) for particularly risky derivative transactions. The proposed spending bill (will again) allow the banks to gamble with investor's money (including pension funds) — and if they lose money, the taxpayers will (again) be on the hook to bail out the banks. (Read: Citigroup Wrote the Wall Street Giveaway Congress Just Snuck Into a Must-Pass Spending Bill)
The Washington Post also mentions other notable items in the new spending bill, such as:
* Campaign Finance: The bill will dramatically expand the amount of money that wealthy political donors can inject into politics (further decaying our democracy).
* EPA: The bill will cut their budget by $60 million less than last fiscal year. The agency's budget has been slashed by $2.2 billion, or 21 percent, since fiscal 2010, according to GOP aides. The cuts mean that EPA will have to reduce its staffing to the lowest levels since 1989. (So who will be left to clean up after the Keystone pipeline's oil spills?)
* IRS: $345.6 million will be slashed from the IRS budget. (Meaning, there will be less tax audits for wealthy tax dodgers and multinational corporations.)
* Poor People: The Women, Infants and Children Program will get a $93 million cut from the last fiscal year. The program will be required to ensure that "all varieties of fresh vegetables, including white potatoes, are eligible for purchase" through the program -- a big victory for the potato lobby. (More of same: “Feed the rich and starve the poor”.)
* Truckers: The bill is a victory for the trucking industry (but not for trucker's pensions), which blocks new Transportation Department regulations requiring truckers to get two nights of sleep before starting a new work week. (The GOP always protects big business over citizens’ safety.)
In an article titled Hunger Games Economy by David Cay Johnston, he writes about the new spending bill: "Far too many mainstream journalists help obfuscate the awful truth." Regarding the pension provision, he writes: "That this provision got almost no news coverage shows just how much our leading news organizations cater to economic elites favored by advertisers, and how the current generation of reporters at the best news organizations comes heavily from the upper economic tiers of American society. Reporters and editors whose parents were coal miners, truck drivers and clerks have given way to those with degrees from elite schools, some with trust funds that insulate them from the realities of American life for the vast majority. With that shift comes a predicable change in perspective." (I touched on this subject in a post about The White House Correspondents Dinner: "Personally, I could care less about the Hollywood celebrities, but I do wonder about elected politicians and the media rubbing elbows together like that — especially since the Fourth Estate is supposed to be guarding the hen house.")
ALSO: Both the Republicans and the Democrats love defense spending, as it is bacon (pork) that can brought home to all 50 states. If the current spending deal passes, the Pentagon's total budget in the 2015 fiscal year will come in close to what it was during the height of the Iraq War. [I don't think this includes intelligence spending, budgeted under Homeland Security — or the maintenance of our nuclear arsenal, budgeted under the Department of Energy.] The Congressional Budget Office predicts that the Pentagon's base budget will exceed the spending caps by more than $300 billion over the next six years. And Overseas Contingency Operations is also not part of the base budget, so it is not subject to automatic spending caps (which critics have described as "a war chest slush fund.") Not to mention, the US defense budget still has a massive amount of waste, fraud and abuse. (After all, we gotta pay those CEOs and their lobbyists!)
My Related Post: Pensions vs 401ks - The Decline in Retirement Plans
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