Ironworkers In Cleveland to Vote on Whether to Reduce Benefits

The Iron Workers Local 17 Pension Fund has announced its members will be voting to reduce benefit payouts to save their pensions.

The pensioners will have until January 20 to decide to either reduce their benefits now, or “defer any changes and place their benefits in the control of the Pension Benefit Guaranty Corporation [PBGC],” the fund said in a press release.

“This election gives the participants a choice between getting a haircut now or a beheading in the future when it comes to the inevitable cuts we are facing in the current course,” the chairman of the board of the Iron Workers Local 17 said.

The pension plan is the first multiemployer fund approved to reduce benefits from the Treasury Department under the 2014 Kline-Miller Multiemployer Pension Reform Act.

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“We have $85 million in assets and $263 million in liabilities,” Teresa Pofok, legal counsel to the pension fund, told CIO.

The 32% funded plan is projected to run out of money for benefits owed in 2024, even after applying all investments and employer contributions, according to the press release.

If the vote passes, 52% of the plan’s 1,900 participants will see no benefit cut, the fund said. Only about 6% of participants will see a 40% to 50% reduction in payouts, while about 30 pensioners—making between $4,000 and $5,000 per month—will see the largest reduction of 50% to 60%.

The changes would go into effect Feb. 1 and give the fund a 54.2% chance of staying solvent.

The Iron Workers Local 17 fund suffered losses when the dot-com bubble burst, and then lost 30% of its assets in 2008. The pension plan continued to bleed during the recession.

When the law allowing for benefit reductions passed in 2014, Pofok said it seemed like a better option.

“Recent studies issued by the PBGC project that the PBGC itself will become insolvent in 2025,” the pension plan said. “When the PBGC itself becomes insolvent, the benefits being paid to retirees could be reduced as low as $0.”

Up for Debate

The economy may be making the old formula for such plans impractical, because pensioners put in more money than an average life expectancy may return.

“You put in $570,000 dollars over your career to get a $1500 dollar a month pension. You have to live basically 31 years after retirement just to get the money in that you put out,” Pofok said.

The problems make a case for the hybrid plans, which allow benefits to be reduced or raised in correlation to market fluctuations and often offer the ability to add an annuity, said Pofok, but that doesn’t give as much security to retirees.

The Social Security Administration is on course to run out of money, says the Congressional Budget Office (CBO.)

CBO projected a 31% reduction in scheduled payable benefits by 2029 and a 29% reduction by 2060, given current credited outlay limits.

The CBO prepared long-term projections and concluded if the current revenues were insufficient to cover benefits, the Social Security Administration would no longer be permitted to pay full benefits.

“After increasing for several years, the required reduction would abate as people in the baby-boom generation died,” says the report. “And because life expectancy is anticipated to continue to rise, by 2080, [benefits] would need to be 34 percent lower.”

Most (73%) of the 61 million people who receive Social Security benefits are retired workers or their spouses and children, and another 10% are survivors of deceased workers.

“In fiscal year 2016, total outlays exceeded noninterest income by about 7 percent,” according to the report. “If current laws governing taxes and spending stayed the same and if benefits were paid as scheduled, outlays for the Social Security program would rise from 5.0 percent of gross domestic product (GDP) in 2016 to 5.9 percent in 2026 and to 6.3 percent in 2046; they would exceed tax revenues by 33 percent in 2026 and by 42 percent in 2046.”

Spending for Social Security benefits totaled $905 billion in FY 2016, nearly 25% of federal spending.

Shortfall projections were increased because of lower projected interest rates, GDP, and taxable payroll amounts, and to the ages retirees choose to claim Social Security benefits.