International Business Machines Corp. (IBM): Why Unions Want to Cut Retiree Pension Benefits

The PBGC steps in to make payments to pensioners when pension plans fail. Source: PBGC.

Unfortunately, the PBGC has had financial problems of its own for years. The premiums the PBGC collects from employers haven’t been sufficient to avoid a funding deficit of about $34 billion, and it anticipates rising rates of pension insolvencies to push that deficit much higher in the coming decade. As a result, lawmakers will be more receptive to union and employer proposals that could reduce any potential taxpayer bailout of the PBGC in the future.

Weighing the alternatives
Pension obligations have also become a big financial issue for public employees. The recent bankruptcy of the city of Stockton, Calif., has become a test case for whether federal bankruptcy law overrides California law’s requirement for the funding of the California Public Employees Retirement System. Other municipal creditors wanted Stockton to reduce the amount that would go to CalPERS in its reorganization plan, and although a court-approved Stockton’s plan in ruling that those creditors acted in bad faith by refusing to negotiate, the judge suggested that the amount of money going to CalPERS could be subject to negotiation as part of bankruptcy proceedings.

In the end, with public and private employers all struggling to make ends meet, the shrinking pool of funding for pension benefits means that some workers won’t get the full amount they were expecting. The big question, though, is which workers will bear the brunt of the shortfall, and the joint union-employer proposal would put the benefits of all workers, both current and former, on the table.

The article Why Unions Want to Cut Retiree Pension Benefits originally appeared on Fool.com is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool owns shares of IBM.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.