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Benefit Cutbacks in Multiemployer Plans

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The Pension Protection Act of 2006 permits certain underfunded multiemployer plans to eliminate subsidized early retirement, subsidized joint and survivor, lump sum and other benefits.

A provision in the pension law known as the anti-cutback rule prohibits plans from reducing or eliminating certain already-earned benefits. These include special early retirement benefits, such as 30-and-out pensions, and unreduced widows and widowers benefits. Prior to the PPA, plans could only change the rules for the future. Workers could still count on getting the portion of the “subsidized” benefits earned up until the rule changed as long as they met the requirements for these benefits after the rules were changed.

Under the PPA, multiemployer plans that are significantly underfunded are given an exception to the anti-cutback rule’s protection for already-earned subsidized early retirement and survivors benefits. If certain procedures are followed, plans in “critical status”, can eliminate the entire subsidized early retirement benefit (and/or subsidized survivors benefits) for workers who have not yet retired. Workers will still get all earned benefits if they wait to collect the pension until normal retirement age, usually age 62 or 65, but the pension will be reduced (typically by 6 percent a year) if collected at an earlier retirement age.

Before cutting benefits plans must follow certain procedures. If a plan is less than 65 percent funded, the plan trustees must provide notice to workers that the plan has entered critical status. They can then recommend cutbacks to the union and employers contributing to the plan. The union and employers must agree to the cutbacks in collective bargaining. Finally, a notice must be provided to workers at least 30 days before the benefits reductions take effect.

If these procedures are followed, the plan trustees can reduce the benefits for anyone who was not retired and collecting benefits on the date when the trustees first provided notice that the plan had entered “critical status,” even though that date was before the cutbacks were agreed to by the union and employers.

This provision took effect in 2008.

Read Sections 202 and 212 of The Pension Protection Act of 2006 (Public Law 109-280).

Read about benefit restrictions in single employer plans.

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