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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If you have a problem with your retirement plan, free help may be available from the U.S. Administration on Aging's network of Pension Counseling and Information Projects. Find help now.
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Did You Know?
A 401(k) plan is a retirement savings plan in which the benefit is based on contributions to an individual account and the investment return on those contributions. Typically, employees make contributions to the plan and, in many cases, employers match the employees' contributions. These plans are called defined contribution plans. In most 401(k) and other retirement savings plans, the employee is responsible for choosing among the investments offered by the plan. Other types of retirement savings plans are 403(b) and 457 plans.