WSJ: Is Union Pension Bail-Out Moving Up Congressional Agenda? : Labor Relations Today

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Posted on August 17, 2010 by Seth Borden

WSJ: Is Union Pension Bail-Out Moving Up Congressional Agenda?

The Wall Street Journal (subscription) ran a piece this weekend highlighting again the dire state of multi-employer pension plans in the U.S. THe WSJ criticizes the Create Jobs & Save Benefits Act of 2010 (S. 3157), introduced by Senator Bob Casey (D-PA) back in March:

Congress is gone for August—heaven be praised—but that hasn’t stopped unions from quietly mobilizing to push through a big new priority this fall: a pension bailout. Big Labor is going Code Red on the issue, in the face of a looming accounting change that would force companies to confront the Ponzi-style nature of multi-employer pension plans.

We wrote in June about this class of some 1,500 union-run retirement vehicles, in which companies across an entire industry pay into a single pension pool. Hundreds of these multi-employer pools are badly underfunded, thanks to years of labor funneling money into new pay and benefits, rather than into the funds for retirees.

The big problem with these plans is that when one company in the pool goes out of business, the other companies remain on the hook for the cost of the plan. These spiraling liabilities inspired Pennsylvania Senator and Big Labor favorite Bob Casey to introduce legislation to cordon off “orphaned” pensions—those for which an employer has stopped contributing or withdrawn from the plan—and drop them on the federal Pension Benefit Guaranty Corporation.

The PBGC is already significantly underfunded and taxpayers are its ultimate backstop. Yet the Casey bailout could dump as much as $165 billion in new liabilities on the PBGC, while multi-employer plans would get a clean bill of health. What a deal…

In a press release, Senator Casey blamed the pension crisis on the current recession, and on employers who ceased making contibutions and closed as a result. While the current environment certainly has not made matters any better, the serious underfunding of multi-employer pension plans pre-dates the present state of the economy. In the summer of 2008, Hudson Institute fellow DIana Furchtgott-Roth highlighted this serious problem in a research paper entitled "Union vs. Private Pension Plans: How Secure Are Union Members' Retirements?" She studied and reported alarming rates of underfunding as of 2005.

There were critics of the Employee Free Choice Act who believed that bill was motivated primarily by the potential benefits to underfunded pension fund brought about increased union density. In any event, whether by such indirect or more direct legislative or regulatory action, it appears that addressing the state of multi-employer pension plans will become a hotter topic in the very near future.

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