Tuesday, June 1, 2010

Democrats plan union pension bailout

President Obama declared that there would be no more government bailouts, so his congressional minions had to think of a clever disguise for the next big boondoggle coming your way.  Try this misnomer:  "Create Jobs and Save Benefits Act."  Sponsored by Pennsylvania Democratic Senator Bob Casey, it's a bailout of union-run pension plans. Period.  The Wall Street Journal explains:
Mr. Casey is gathering support for his curiously named "Create Jobs and Save Benefits Act," a bailout for union-run retirement plans. Similar to House legislation from North Dakota Democrat Earl Pomeroy and Ohio Republican Patrick Tiberi, the bill would transfer tens of billions of dollars worth of retiree liabilities to the Pension Benefit Guaranty Corporation, i.e., to taxpayers.

At issue are multi-employer pension plans, in which companies across an industry pay into a single pension pool. The plans are predominately run by unions and for years have distinguished themselves by poor management. The Labor Department in 2008 listed 230 multi-employer plans that were either endangered (less than 80% funded), or critical (less than 65% funded), or that had applied to government for funding relief. By 2009 that number had soared to 640.

The financial crash is partly to blame, but even before 2006 only about 6% of multi-employer plans were fully funded, compared to about 31% of single-employer plans. The real problem is that multi-employer plans have become a sort of pension Ponzi scheme.

Unions love multi-employer plans because they let workers keep their retirement benefits even if they switch jobs to another participating company. This encourages lifelong union membership. Unions are less enthusiastic about paying the bills. The negotiating priority of union leaders is to get hefty wage increases and benefits for current workers, leaving the scraps to the pensions of retirees who no longer vote in union elections.

When a company in an industry goes out of business, meanwhile, the remaining firms are still on the hook for all costs of the multi-employer plan. This explains why the trucking industry is backing Mr. Casey's bill, and why Mr. Casey announced his legislation at a Pennsylvania facility of YRC Worldwide, a Kansas trucking outfit. Someone has to pay for years of the industry agreeing to Teamster demands.

Mr. Casey's bill would cordon off "orphaned" pensions—those for which an employer has stopped contributing or withdrawn from a multi-employer fund—and put them into a separate account. Surviving companies would pay benefits to these orphans for five years, after which they'd get kicked to the PBGC, which would shoulder the benefits until the last retiree or beneficiary dies. The remaining multi-employer plan would be back in the black, free to start the negative-feedback loop of underpayments and overpromises again.
Senator Casey claims his bailout scheme will cost "only" $8 billion, but in a September 2009 report, Moody's estimated that multi-employer plans were $165 billion underfunded. In a March post, Jeff Dunetz at RedState listed 103 union pension plans that were rated endangered or critical.  The Journal describes this bailout as a "consolation prize" to the unions to compensate for the failure to get "card check" legislation passed.  Andrew Langer at The Washington Times thinks it amounts to a big union payout for a relatively small $400 million bet:
At this point, it would be unfair to say definitively that part of the $165 billion going to unions to help their struggling pension funds will go toward the millions they plan to spend to retain incumbent Democrats in Congress. However, considering that unions gave nearly $400 million to Mr. Obama and the Democrats in 2008 for campaign contributions, as well as millions more for in-kind contributions, it is fair to suspect that the bailout is political payback for support during the election.

All of this begs an interesting question: If the unions had $400 million to give to Mr. Obama to help him get elected, why didn't they use that money to prop up their own pension funds? Granted, it wouldn't have made much of a dent in the $165 billion they'll be getting from the taxpayers, but it would have made a slight one. The answer: because it's a calculated bet. They chose to invest that $400 million in a situation that would garner them a larger payoff in the future once the bailout occurred.

This should infuriate taxpayers forced to pay for this kind of gamble and the rank-and-file union members who pay their dues only to have their promised pension money used in some sort of twisted version of Vegas blackjack. Is the intent to use some of the bailout money to ensure that those rank-and-file union members - many of whom are out of work along with their non-union brethren - will vote the right way during the November election? After all, there would be no better way to ensure incumbency protection than by convincing the local voters that the party of the big bailout is the one that has their backs in November.

5 comments:

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