12/15/2014 09:33 pm ET Updated Feb 14, 2015

Some Pension Checks Vulnerable Under New Law

Are you expecting a monthly pension check during retirement? If so, better check again. If you are covered by a multi-employer pension plan -- typically administered by unions that cover workers in a single industry -- some new rules passed by Congress as part of the omnibus spending bill may lead to cuts in your promised retirement benefits.

Under these new rules, the benefits you've been promised in multi-employer plans can actually be cut if your plan is in jeopardy of failure within 15 years and is less than 80-percent funded. (Retirees age 80 years old and older would be protected from cuts.) This is a huge change from longstanding federal rules that prohibit scaling back pension benefits.

It's no secret that many pensions are "underfunded," having promised more future benefits than the current investments can provide. Even with the stock market at all-time highs, some of those promises are in jeopardy since the appropriate contributions were not made in time to create the growth needed to pay the pensions.

The amount of pension jeopardy depends on the employer: private, multi-employer/union, or public/government. In each case, your retirement security depends on how those pension trustees acted on your behalf over the years.

Maybe it's time for you to look into the future security of your own pension -- and start saving more just in case it can't keep up with its promises. Getting the numbers for your plan is relatively easy. Every pension plan must give participants an annual written notice about the funding status of the plan.

Future generations will rely more on 401(k)-type plans, which have replaced traditional pensions at many companies. In these plans, the payout is dependent on each individual's own investment contributions and decisions.

Some Pensions Are Insured -- Up to a Point

Some pensions have an extra degree of retirement income security -- sort of. Company and multi-employer/union pensions are protected by the Pension Benefit Guaranty Corporation (PBGC), which is a government agency created by the Employee Retirement Income Security Act of 1974. It insures about 26,000 pension plans, covering about 44 million American workers in "defined benefit" pension plans -- plans that promise a specific benefit at retirement, perhaps adjusted for inflation in future years.

About 10 million of those insured employees work for multi-employer plans in various industries, such as construction, trucking, or coal-mining. The amount of their benefits is typically negotiated by unions representing the workers. This multi-employer coverage was designed many years ago to allow workers to move more easily between jobs at different companies without losing pension benefits. A big issue for these plans is that now they have an average ratio of two retirees for every worker. (The Central States Teamsters plan has five retirees for every worker!)

The PBGC is funded by insurance premiums collected from employers that sponsor pension plans. It does not insure government retirement plans or military or religious association pension plans. And it does not insure 401(k) plans and other "defined contribution" plans.

So if your employer files for bankruptcy or its plan becomes insolvent, the PBGC becomes the trustee of your pension pla and stands behind your promised pension -- up to a point. If you were a highly paid worker expecting a big monthly retirement check, you may be out of luck when it comes to getting your full pension.

In 2014 the top monthly payout from the PBGC is $4,943.18 per month ($59,318.16 per year) for workers who begin receiving payments from PBGC at age 65. And the PBGC payments do not come with a cost-of-living increase, nor do they cover promised retiree health benefits or life-insurance benefits.

Even worse, the PBGC itself is in doubtful financial shape, with a long-term deficit of $62 billion, according to its latest annual report. And it has warned that its multi-employer program has a 90-percent chance of running out of money within 10 years -- especially if some large covered plans fail in the next few years, as projected.

The New Deal for Pensions

That's why employers and union representatives got together to help pass the new pension provisions that are part of the omnibus spending bill and will be the law of the land when that bill is signed by the president.

These new federal rules apply only to multi-employer pension funds, but this landmark legislation may point the way toward a solution for hugely underfunded state and municipal pension problems. It is estimated that public employee pension funds (cities and states) have total deficits exceeding $1 trillion -- and an average funding level of only 72 percent. (That masks huge deficits such as in Illinois, where the funding level is only 39 percent!)

Under state laws -- many currently being challenged in court -- those promised benefits cannot be cut now or in the future. Some municipalities facing dire situations have recently come to terms with future retirees for a cut in benefits and COLAs, including Detroit. But until now there's been an impasse in addressing most state and municipal pension issues, with little incentive for municipal workers and their employers to sit down and negotiate any changes.

The state/municipal pension crisis is upon us. The only alternatives in the future will be cutbacks in services, or payment defaults, or huge tax increases. And since most workers reside in the communities that will be affected, the benefits they do receive will likely be offset by those higher taxes.

Perhaps now, with the new federal law actually encouraging cuts in benefits for those in multi-employer plans, there will be precedent for altering state and municipal pension promises. That issue will soon be vigorously debated in the courts. And that's the Savage Truth.

Top 8 Financial Worries Of Americans