The proposed cuts are part of a desperate effort to head off insolvency at multiemployer pension plans, pensions that typically provide benefits for workers at several companies.
It's an unconventional move: Pension law has long maintained that cutting the benefits of those already retired is off-limits. Current law allows troubled multiemployer plans to reduce the benefits that employees earn going forward, cut early retirement and disability benefits and hike employer contributions instead.
But things have gotten so dire that a coalition of employers and labor unions is asking Congress to change the law.
Multiemployer pension plans cover more than 10 million workers and retirees in the trucking, construction, retail, mining, manufacturing and other industries. Historically, the plans were considered more secure since multiple employers pay into the plans instead of relying on the fortunes of just one company.
But in the past decade, many plans have struggled with supporting an aging workforce, and large employers have been pulling out of the plans. In addition, many are still dealing with significant losses incurred during the recession.
The proposal would allow cuts for those plans that are closest to insolvency. According to the Pension Benefit Guaranty Corporation, which insures pension plans, up to 10% of the roughly 1,500 multiemployer plans will run out of money in coming decades.
If cuts are allowed, retired truck driver Glenn Nicodemus, 63, could see his monthly benefits fall from around $3,300 a month to as little as $1,180. He retired in March after nearly 40 years on the road, and his only other source of income is $1,700 a month in Social Security benefits.
"I probably could get a job driving again. I really don't want to," he said. "These are the years I was looking forward to being together (with my family) and enjoying what time I do have left. It takes a lot of that away."
Nicodemus receives his checks from one of the country's largest multiemployer plans, the Central States Southeast and Southwest Area Pension Fund, which is also one of the most troubled. The fund is projected to become insolvent in the next 10 to 15 years. If cuts are allowed, the fund's more than 200,000 retirees could see their checks slashed by as much as 60%.
"Without timely intervention, workers in the most deeply troubled plans are at risk of seeing the benefits they have earned drastically reduced," Thomas Nyhan, executive director of the Central States pension fund said at a recent Congressional subcommittee hearing.
The PBGC guarantees a significantly lower benefit level for participants in multiemployer plans than it offers for single employer plans, since employers in multiemployer plans pay much lower premiums. So retirees could ultimately see drastic benefit reductions either way.
If a multiemployer plan goes insolvent, a retiree is guaranteed $12,870 a year at most, which is slightly less than the minimum benefit allowed under the proposed cuts. In contrast, a retiree in a single-employer plan is insured for up to $59,320 a year.
Groups like the AARP, the Pension Rights Center and an increasing number of unions oppose the proposed cuts. They say that retirees are counting on their pension benefits, which they were promised through decades of union contracts.
They argue that other solutions should be considered, such as allowing troubled plans to merge with healthier plans and raising the insurance premiums employers pay the PBGC.
"This is unprecedented," said Karen Ferguson, director of the Pension Rights Center, a nonprofit advocacy group. "These retirees in most cases are barely scraping by with their pension and Social Security benefits. It would be devastating to them."
Official legislation is likely to be introduced in Congress in coming months. In the meantime, hundreds of thousands of retirees are left unsure whether their pension benefits are safe.