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The facts about multi-employer pensions' insolvency risk

When it comes time for retirement, employees in Minnesota and around America want to know that their savings and pensions will be there for them. However, when the economy hits a bad turn, a pension runs out of money or a business fails, it leads to questions about what will happen to the employees who rely on the funds to pay their golden years.

A previous post discussed the Employee Retirement Income Security Act of 1974, which guarantees that some benefits are paid even if a plan ends, as well as some other employee rights regarding pensions. Although employees have certain rights, it does not mean that their pensions are complexly off limits to changes, even after they retire.

One common pension set up relies on multi-employer funds, according to the StarTribune. These pensions cover several different companies under the same benefits. It is used in many industries, such as construction and retail, and there are roughly 11 million people who have these types of funds. One reason it is popular is that it allows workers to change jobs within the same industry but retain their pension benefits.

Although these programs have been around for a long time, there are many that are facing potential insolvency. There is a federal backup plan, but the effects of one or more of these programs failing could be too much for it. This could lead to far-reaching implications, as these multiemployer pension systems have a $38 billion economic impact.

A new law affects what changes can be made on pensions from multiemployer funds at risk of insolvency, according to CNN Money. If a fund risks running out of money within the next two decades, it can make cuts that affect those how have already retired. Previously, any cuts would not affect those already relying on the monthly pension payments, but current workers might see their plans reduced.

Although this means that retired workers might see their pensions being cut, there remains some protection. The companies must first try other ways to stretch the funds and cannot cut the benefits for those over 80 or who are on disability. Furthermore, the Treasury Department must approve the plan. Private and public sector companies that utilize a single-employer pension do not fall under the same new legislation. 

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