In 2014 a new Federal law made it possible for pension funds to cut benefits for their recipients. Much to the protest of pensioners, the government and numerous unions supporting the change cited pension plans that were in imminent danger of collapse, saying that the only way to save the funds was to cut benefits to potentially millions of recipients. Six months later, the U.S. Supreme Court took things a step further when they opined that the government has the right to fully seize 401(k) and pension funds that were being poorly managed.
Of course, most Americans were either not paying attention or completely ignored the ramifications of the new rules set forth by their government because, well, anyone who talks about the potential for a collapse of pension funds or the economy is, as President Barack Obama so eloquently noted in his recent State of the Union Speech, “peddling fiction.”
Except in October of last year the canary in the coal mine fell over and died when Illinois announced that the State was posting pension payments because it ran out of money.
Fast forward a few more months and things have been taken to the next level. The Central State pension fund in Kansas became the first such fund to take advantage of the 2014 law as 400,000 Americans who depend on their monthly pension income to pay for such things as their mortgage, groceries and medical expenses saw an average of $1,400 per month sliced of their monthly benefits.
Dale Dorsey isn’t happy.
After working 33 years, he’s facing a 55% cut to his pension benefits, a blow which he says will “cripple” his family and imperil the livelihood of his two children, one of whom is in the fourth grade and one of whom is just entering high school.
Dorsey attended a town hall meeting in Kansas City on Tuesday where retirees turned out for a discussion on “massive” pension cuts proposed by the Central States Pension Fund, which covers 400,000 participants, and which will almost certainly go broke within the next decade.
“A controversial 2014 law allowed the pension to propose [deep] cuts, many of them by half or more, as a way to perhaps save the fund,” The Kansas City Star wrote earlier this week adding that “two much smaller pensions also have sought similar relief under the law, and still more pensions are significantly underfunded.”
And if you think this is the end of it, consider the words of long time teamster member Jay Perry who says the writing is on the wal:
“What’s happening to us is a microcosm of what’s going to happen to the rest of the pensions in the United States”
It was all fun and games during the boom times when governments and companies promised pensioners exorbitant retirements based on an unlimited growth rate model. Now reality is setting in.
And keep in mind that this is just the first part of the coming retirement fund destruction. As we noted above, the Supreme Court ruling gives the government the “right” to step in and seize these underperforming funds.
So, the first step is to give pension funds the ability to cut benefits, which we are seeing now and will continue to see going forward as funds all over the country struggle to keep the benefits flowing. Next, the government will identify these funds as under-performing and mismanaged, at which point they will outright seize the entire industry just as they did with health care.
The pain is coming, America. You’d better be prepared to deal with the fallout.