Photo

The pensions of millions of Americans are being threatened because of trouble in a part of the retirement world long considered so safe that no one gave it a second thought.

The pensions belong to people in multiemployer plans — big pooled investment funds with many sponsoring companies and a union. Multiemployer pensions are not only backed by federal insurance, but they also were thought to be even more secure than single-company pensions because when one company in a multiemployer pool failed, the others were required to pick up its “orphaned” retirees.

Today, however, the aging of the work force, the decline of unions, deregulation and two big stock crashes have taken a grievous toll on multiemployer pensions, which cover 10 million Americans. Dozens of multiemployer plans have already failed, and some giant ones are teetering — including, notably, the Teamsters’ Central States pension plan, with more than 400,000 members.

In February, the Congressional Budget Office projected that the federal multiemployer insurer would run out of money in seven years, which would leave retirees in failed plans with nothing.

“Unless Congress acts — and acts very soon — many plans will fail, more than one million people will lose their pensions, and thousands of small businesses will be handed bills they can’t pay,” said Joshua Gotbaum, executive director of the Pension Benefit Guaranty Corporation, the federal insurer that pays benefits to people whose company pension plans fail.

“If Congress allows the P.B.G.C. to get the money and the authority it needs to do its job, then these plans can be preserved,” he added. “If not, the P.B.G.C. will run out of money, too, and multiemployer pensioners will get virtually nothing. This is not something that can wait a few years. If people kick the can down the road, they’ll find it went off a cliff.”

So far, efforts to keep multiemployer plans from toppling, and taking the federal insurance program down with them, are giving rise to something that was supposed to have been outlawed 40 years ago: cuts in benefits that workers have already earned.

For example, after Carol Cascio’s husband died of a heart attack at 52, the pension office of his union, the United Food and Commercial Workers, told her his 33 years as a supermarket meat manager had earned her a widow’s pension of $402.31 a month for life. It would start in three years, on what would have been his 55th birthday.

She waited, but just before her first payment should have come, she received a letter instead saying that the pension plan had been “terminated by mass withdrawal” and that she would receive nothing.

“Now I’m in a real pickle,” said Ms. Cascio, 62, a stay-at-home mother in Brooklyn who had already borrowed against the promised pension to pay for her daughter’s education. “I have no one. I have a mortgage on my house. I have my daughter. How do you do this to someone?”

“Only a few years ago, it would have been inconceivable that anyone would have their benefits reduced,” said Karen W. Ferguson, director of the Pension Rights Center, a watchdog group in Washington. “The law hasn’t caught up with what’s happening here.”

The law she was referring to is the Employee Retirement Income Security Act, or Erisa, the landmark federal employee-benefits law enacted in 1974. It contains a well-established provision known as the anticutback rule, which holds that companies can freeze their pension plans at will, stopping their workers from building up any additional benefits, but they cannot renege on benefits their workers have earned through work already performed.

In the multiemployer world, the anticutback rule was amended in 2006, permitting the weakest plans to stop paying certain benefits to people who had not yet retired, including disability stipends, lump-sum distributions, recent pension increases, death benefits and early retirement benefits. The goal was to help those plans conserve their money while they try to rehabilitate themselves. Experts say the measures have helped, but some multiemployer plans may still fail if they cannot cut payments to retirees as well.

Ms. Cascio’s pension turned out to be in a category subject to cutting: pensions for widows whose husbands died before retirement. They must be cut if their plans have fallen to “critical status,” defined as having less than 65 cents for every dollar of benefits they owe. That is supposed to save money so the plan can keep on paying other retirees their “nonforfeitable benefits” while it negotiates bigger contributions from participating companies, or tries to attract new companies into the pool.

That could not happen in Ms. Cascio’s case. A few months before her husband died, all the supermarkets in his plan decided to disband the pool. He told her not to worry. Each company was making a final contribution to what is known as a “wasting trust,” which would have enough money to pay everyone’s pensions for the rest of their lives. Then the stock market crashed in 2008. Much of the money in the pool melted away, and there was no one left to turn to for more.

“I manage on a widow’s Social Security,” said Ms. Cascio, who receives a little less than $900 a month after her Medicare premiums are deducted. “It’s been hard.”

Her house, in Gerritsen Beach, was flooded by Hurricane Sandy, and she scraped along for eight weeks that winter without heat, electricity or hot water. Some days, she sat for hours on a city bus, just to keep warm.

Congress made the multiemployer insurance much less comprehensive than the single-employer version because multiemployer plans were supposedly so safe they did not need much insurance.

The P.B.G.C. is supposed to be self-supporting, financing its operations with premiums paid by companies rather than tax dollars. Its single-employer program has the power to take over company pension funds before they run out of money so the assets can be used to help defray the costs. But the multiemployer program must wait until a failing plan’s investments are exhausted, so it gets nothing but bills. It now has premiums of about $110 million a year to work with. All it would take is the failure of one big plan to wipe out the whole program.

The Central States plan, for example, pays $2.8 billion a year to retirees but takes in only about $700 million from employers. It must rely on investment returns to keep from exhausting its assets, but Thomas C. Nyhan, director of the pension plan, said it would take returns of at least 12 percent a year, every year, to come out even, and that is not realistic. Its modeling suggests it will run out of money in 10 to 15 years — most likely around 2026, if nothing is done.

Labor officials, business groups, members of Congress and others have been quietly discussing a proposal to extend multiemployer plans’ life spans by letting them roll back even retirees’ pensions. Such plans are often found in mature sectors, in which retirees outnumber active workers and cuts affecting only the existing workers do not produce enough of a saving as a result. And once a multiemployer plan gets to that stage, officials have discovered, new companies will not join the pool, because they do not want to be stuck paying for extinct companies’ orphaned retirees.

“Arithmetic is going to trump everything here,” said Mr. Nyhan of the Central States plan, which has about five retirees for every current driver.

The Central States plan achieved lasting notoriety in the 1960s and 1970s, when it was run as a virtual bank for organized crime; even today, it still operates under federal court supervision. But today its problems are radically different. First, it lost so much money in the dot-com rout that its supervising judge gave permission to start reducing some benefits as early as 2003. Then, in 2007, it lost its biggest company, United Parcel Service, which paid $6.1 billion to leave the pool. The payment was supposed to cover U.P.S.’s share of the plan’s total shortfall forever, but the shortfall grew by billions of dollars in 2008, when the market crashed and U.P.S. was no longer around to help.

That left a much bigger shortfall to be divided among a smaller pool of employers. George Kerver found that out the hard way. He is president of Fastdecks, a company near Detroit that makes big concrete beams and pillars for construction sites. For years, Fastdecks had one part-time Teamster on the payroll, earning a small pension from Central States. But business slowed to a creep, and in 2011 the lone Teamster resigned, saying he needed a job with more hours.

By law, that meant Fastdecks had to pay a withdrawal liability, just as U.P.S. did. But by 2011 the math was worse. Fastdecks received a bill for $465,774, its pro rata share of the fund’s enlarged $22 billion shortfall.

“We didn’t think we should have to pay it, because we weren’t planning on leaving the union,” Mr. Kerver said, noting that he started as a laborer at Fastdecks 37 years ago and still employs union carpenters and laborers. His lawyers told him if he did not pay, the bill would snowball by accruing penalties and interest.

“What are we supposed to do?” he said. “That was our retirement. Now we owe everything to the Teamster fund.” Bankruptcy was not an option, so he arranged a 20-year payment plan with Central States.

“They lost a union company,” he said, “because we’re never going to have another Teamster again.”