Did John Kline Pension “Reform” “Only” Impact 3,865 MN-02 Retirees ?

After Congress passed legislation to progressively lower the student loan rate to 3.4 percent in 2007, John Kline (R-MN-02), the chairman of the House Education and the Workforce Committee warned that would “result of a ticking time bomb set by Democrats”.
As students know now, Chairman Kline has diffused the “time bomb” by “reforming” the student loan interest rate program … what was 3.4% is now 4.66% and forecasted to increase.

Chairman Kline is also worried about Pell Grants (which help low-income students access higher education programs) … foreseeing that the “Pell Grant program [is] on a path to bankruptcy” as he encouraged changes to pension reform programs and Pell Grant programs as part of his recommendations to the Committee on Deficit Reduction.

So as Congress set to close this term, Chairman Kline was able to address these issues as part of the federal government appropriations bill known as the “CRomnibus” (appropriations for 11 separate parts of government, all voted on as one bill.)

First, the Pell Grant issue was addressed … not by funding it … but by raiding it. The federal government “raided” existing surplus in the federal Pell Grant program to the tune of over $300 million to pay student loan servicers in 2015 with the money going to companies like Nelnet and Navient … thus pushing the funding problem earlier … like 2017.

Second, in a 161-page amendment to the “CRomnibus”, Chairman Kline was able to enact fundamental changes to the pension regulations –put in place nearly 40 years ago– under the Employee Retirement Income Security Act (ERISA) including permitting pension plans to cut the earned and vested pension benefits of current retirees.

Chairman Kline’s press release trumpets it as saving “multiemployer pension plans that are facing imminent bankruptcy” yet, is that all that it is doing ?

Reportedly, Congress did not stipulate that this change applied to multi-employer plans only. It enacted the law in a way that it changed the Employment Retirement Income Security Act to permit the change to some underfunded multi-employer plans but did not add the word “only.”
Thus not only could well-funded multi-employer plans but also all other plans could be impacted.

So while Chairman Kline promotes this as necessary to “protect millions of workers from financial catastrophe”, the number of retirees in Minnesota Second District is reported to be 3,865 … yet, this is the beginning of a slippery slope for future generations where pensions are doomed to a death by a thousand cuts.

Consider for example, what is happening to the premiums for the Pension Benefit Guaranty Corp. (PBGC), the federal private pension backstop. The purpose of these premiums is to ensure that the PBGC has enough money to pay future benefits in case of plan failures and the premium rate is set by Congress. Annual premium payments that companies participating in multiemployer pension plans pay will increase from $13 to $26 per worker. Some companies see this increase as large and punishing, thus Chairman Kline’s concern that companies could abandon these pension programs may come about because of this premium increase.

Further, the PBGC was granted the authority to facilitate the merger of two or more multiemployer plans if insolvency is likely and a merger would help. This means solvent plans can be used to bail out insolvent ones. Thus another reason companies to ending participation in multiple-employer plans.

Also, you may have been reassured when you read that plans with 10,000 (retirees and active workers) or more participants must allow all participants to vote on cuts before they are made.
While this implies that you will have a say, don’t count on it. The cuts would only be rejected if more than 50 percent of participants voted against them, not 50 percent of those voting … a higher threshold. Even then, the U.S. Treasury Department can override the vote and go forward with the cuts if it concludes that impending plan insolvency poses “systemic” risk to PBGC.

These changes should not have happened in a “must pass” year-end CRomnibus. These changes impact so many working families, it should have been considered through the regular, transparent, and open legislative process. There has been no opportunity for public input, no mark ups, and no hearings.

We are furious that without debate Congress has placed the burden of rescuing underfunded plans on the people who can least afford it — retirees and surviving spouses who rely on their pensions for food, medication, and other necessities,” said Karen Friedman, the executive vice president of the Pension Rights Center.
Bruce Olsson, assistant legislative and political director for the International Association of Machinists, says the plan impacts the “wrong people and it shreds ERISA. These retirees didn’t cause the problem.”

According to The Washington Post, the root of the problem is that many of the multiemployer pension funds were targeted by institutional investors (financial companies and banks) in the pre-crash years … who bought mortgage-backed securities, which subsequently imploded. They pension funds were sold a fraudulent product, which ended up depleting the pension fund.

George Washington University Economics professor Joann Weiner noted in an OpEd in The Washington Post that Chairman Kline’s “reform” impacts women the hardest.

That is understandable considering that women, on average, live about five years longer than men, thus they rely on retirement benefits for a longer period of time. Also, because women work approximately 12 fewer years than men, and earn less than men, their contributions to a defined contribution plan are lower, as are any employer matching contributions.

Chairman Kline seems to have a simple message … parents better teach your children and grandchildren that they are not going to retire before they are 75 … and to plan on “helping out” because current retirees are hearing of pension cuts of thousands of dollars and will need help.

Chairman Kline has acted on workers pensions but has failed to join other Members supporting H.R. 178 : the End Pensions in Congress (EPIC) Act.
Under current law, at the age of retirement, Members of the House who serve for at least five years receive a pension. This pension provides them with an annual payment of 1.7 percent of their salary multiplied by the number of years they served in Congress. Some Members are eligible to receive up to 80 percent of their final annual salary, which currently would equal over $137,000 a year.
The EPIC Act deserved a hearing … but heck, so did changes to ERISA that Chairman Kline buried into the “CRomnibus“.

Chairman Kline has failed workers … all while telling them that he is doing it to ensure their futures.
Considering Chairman Kline’s assertion that this threat of “imminent bankruptcy” (when analysis indicates that the problem wouldn’t be until the next decade) and warnings of “ticking time bomb”, the result is obvious … when he diffuses a problem, YOU will be collateral damage.

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