Over at The Daily Caller, Jon Ward does an excellent job unpacking the facts surrounding Senator Bob Casey’s, D-Pa., legislation to bailout union pension plans. The Pension Benefit Guaranty Corporation is already billions in the hole and Casey wants to saddle it with billions of dollars more in taxpayer-backed liabilities. Of course, when the stuff hits the fan, this will likely result in yet another big taxpayer bailout.
Anyway, Ward explains all the particulars well and I’ve seen no better explanation of what’s going on than his article. Read it. But indulge me one minor quibble — Ward doesn’t really flesh out how multi-employer pension plans work, which is integral to understanding this issue. Here’s what Ward wrote about the problem the Casey and Pomeroy bills aim to fix:
Many employers are withdrawing from pension funds as they face higher costs in paying for funds where mostly union beneficiaries outnumber payees and where the fund’s performance has been lackluster.
So, Democrats and some Republicans argue, businesses should not have to pay into a pension fund to support their own employees plus “orphan employees” of firms who have left the fund (the withdrawing firms do have to pay penalties and fees in order to exit a fund)…But to take care of these “orphan employees,” the Casey/Pomeroy bill would create a new fund within the Pension Benefit Guaranty Corporation that would not be funded by premiums from business, which is the PBGC’s normal source of revenue. Instead, all pension benefits paid by this “fifth fund” would be “obligations of the United States,” according to the bill as currently written.
Ward misses what I believe is a critical point here. Firms do not just exit multi-employer pension funds. They either go out of business and leave their employees as orphans, or they buy themselves out by paying off the unions that negotiated the funds with them in the first place. In the end, the “last employer standing” gets stuck with all of the liability.
Last month I noted that “United Parcel Service recently shelled out a whopping $6.1 billion to get out of the multi-employer pension plan in which it was formally enrolled. Prior to UPS shelling out the money, the company’s pension liabilities were estimated to be in the neighborhood of $4 billion, but turned out to be much higher.”
The only other way to get out of a multi-employer plan is for the company to cease to exist. Here’s a not uncommon scenario: A union takes over a hypothetical trucking company — let’s call it XYZ Trucking. The first thing they’re going to do is use their newly acquired powers of mandatory binding arbitration to force them into a multi-employer pension plan, usually with companies represented by the same and/or affiliated unions. So the workers at XYZ Trucking now find themselves in the same pension plan as ABC Trucking.
But let’s say that XYZ trucking gets hit hard by the economy or its business suffers for some other reason. Meanwhile, union strictures make the company less adaptable or otherwise able to respond to the changing business environment, even as the union continues to strong-arm better benefits and salaries year after year. Union pension plan liabilities grow to the point that it affects the company’s balance sheet so adversely the company can’t get a loan. Eventually, XYZ trucking declares bankruptcy.
The good news for XYZ trucking employees is that they are in a multi-employer pension plan. Under “last man standing” accounting rules, ABC Trucking now has to pick up the tab for all the workers at XYZ Trucking even though they never worked at the company.
Bottom line is that unions are taken care of, while taxpayers are left to shell out billions. Nice racket, huh?
Given the liabilities involved, very few companies are willing to enter multi-employer pension plans voluntarily. They usually have to be forced by unions in negotiations and arbitration. Lawmakers may support a pension plan bailout on the grounds that it’s not fair to employers, but unions knew exactly what they were doing when they forced companies into these plans.
Nobody is pointing out that it was wrong for unions to force companies into these untenable positions to begin with. It’s doubly wrong to make the 93 percent of privately employed Americans who don’t belong to a union — who have to contribute to their own 401(k)s for retirement — pay also for the retirements of the seven percent who have or are greedily bludgeoning their employers out of existence.