Get rid of carried interest.
Capital Journal
Pension Bill Seen as Model for Further Cuts
Measure Permits Multiemployer Funds to Reduce Benefits, Which Could Open Door to Moves in Other Troubled Programs
ENLARGE
Rep. George Miller (D., Calif.) is a chief backer of the pension measure.
Associated Press
The legislation is aimed at defusing a potentially explosive problem—the deteriorating condition of what are known as multiemployer plans, jointly run by unions and employers.
The bill cleared by the Senate late Saturday would allow troubled funds to cut benefits for current retirees in some circumstances. That is an exception to a long-standing federal rule against scaling back private-pension benefits.
Lawmakers and experts, while divided over the merits of the change, largely agreed that it could well be the first of many.
The measure “would set a terrible precedent,” said Karen Friedman, executive vice president of the Pension Rights Center, a group that advocates for wider pension coverage and opposes benefit cuts. The bill could encourage similar cutbacks in troubled state and local pension plans, and possibly even Social Security and Medicare, she said.
Some conservatives contend the bill would encourage policy makers to recognize and deal with shortfalls in benefits programs.
“Facing up to the insolvency is healthy,” said Alex Pollock, a scholar at the conservative American Enterprise Institute. While it is difficult to consider cutting retiree benefits, it is often better than taking the money from other people, such as taxpayers, he said.
ENLARGE
The failure of just a few of these plans quickly would bankrupt the federal pension safety net. The safety-net agency, the Pension Benefit Guaranty Corp. recently widened its projected long-term deficit for multiemployer plans to $42 billion.
Under the bill, trustees of financially troubled plans could vote to cut retiree benefits. While plan participants could vote to disapprove a benefit cut, any vote not approving a cut could be overridden for a plan that is considered big enough to pose a threat to the federal safety net.
The bill’s chief backers said last week they were seeking only to address the specific problems of multiemployer plans and weren’t aiming to influence broader debates about other retirement programs.
“There is a unique crisis facing millions of people with multiemployer pensions that are threatened by numerous plans’ imminent bankruptcy, and we worked together to design the best bipartisan solution available to protect the retirement benefits of this very specific group of workers,” Reps. John Kline (R., Minn.) and George Miller (D., Calif.) said in a statement.
“We have a [retirement funding] problem out there, there’s no question, and it has to be dealt with,” said Sen. Ben Cardin (D., Md.), who has helped draft other major pension-law changes in recent years.
Mr. Cardin said he sees “a lot of merit” in the multiemployer legislation. But there will be “great fear that this will be a precedent” for dealing with those problems, he added.
The bill was introduced Tuesday, after several years of hearings, and approved by the House on Thursday as part of a broad spending measure. It was cleared by the Senate late Saturday.
Many states and local governments have started taking steps to shore up underfunded pension plans, with changes including rollbacks of promised future benefit increases and bigger contributions and work requirements for employees. Only a handful of governments have reduced benefit payments so far.
As of fiscal 2013, public-employee funds faced long-term deficits of more than $1 trillion, with liabilities of about $3.8 trillion and assets of about $2.73 trillion, and an average funding level of 72%, according to the National Association of State Retirement Administrators. Funding levels have been declining fairly steadily.
Some experts said the significance of the multiemployer changes is being exaggerated, at least when it comes to state- and local-government pensions.
“I don’t see the [legislation] setting a precedent for public pensions,” said Keith Brainard, research director for the association. He noted that state and local pension plans generally have their own unique legal protections, and some are even shielded by specific state constitutional provisions.
But some of those protections also are becoming vulnerable, as more face financial crunches.
“It’s almost certain that other situations where plans are distressed from a funding standpoint are going to be viewed from the prism that it’s now possible to” cut benefits, said Brian Graff, chief executive of the American Society of Pension Professionals & Actuaries, a trade group. “There are other situations where plans are similarly funded at extremely low levels where you could see this possibly coming up.”
Write to John D. McKinnon at john.mckinnon@wsj.com
