Benefit Cutbacks in Multiemployer Plans
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.
Under the PPA, multiemployer plans that are significantly underfunded are considered to be in "critical status." If certain procedures are followed, these plans can eliminate 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.
If a plan is severely underfunded (for example less than 65 percent funded) or projected not to meet the IRS required funding within four years, then 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 our fact sheet on "How Well-Funded is Your Pension Plan?" to learn more about plan funding and how you can find out your plan's funded status.
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Did You Know?
NAFI Retirement Plans are retirement plans sponsored by government entities known as Non-Appropriated Fund Instrumentalities (NAFIs). NAFIs are part of the federal government but they do not receive funding from Congress. Instead, NAFIs fund themselves with revenue they earn through the services and products that they provide. Because NAFI employees are not eligible to participate in the retirement plans available to most civilian federal government employees, NAFIs sponsor their own plans. Learn more.