Is it a union pensions bailout or not? Is it $10 billion or $165 billion?
These are some of the questions being raised by Sen. Bob Casey’s (D-PA) “Create Jobs and Save Benefits Act of 2010.”
Critics say the bill amounts to a potential $165 billion taxpayer bailout of multiemployer union pension plans. Casey and other backers of the bill contend it is not a bailout and claim the costs are in the $8 billion to $10 billion range.
In recent Senate testimony, an assistant U.S. labor secretary noted the proposal would, for the first time, put nongovernmental pension liabilities directly on the backs of taxpayers.
Home for ‘Orphans’
Multiemployer union pension plans are collectively bargained and sponsored by unrelated employers that usually share a common industry. They are jointly run by union and employer representatives. Such plans are common in trucking, construction, and certain other industries where employees often jump from employer to employer.
Casey’s bill would make several changes to help multiemployer plans, including allowing them to remove all benefit liabilities attributed to “orphans” (employees of companies that withdrew from a plan without paying withdrawal liability) and assets equal to a maximum of five years of projected benefit payments.
Those liabilities and assets would shift to the federal Pension Benefit Guaranty Corporation (PBGC). The PBGC would fully guarantee the benefits as if the “orphans” were still receiving benefits from the multiemployer plan. Moody’s Investors Service estimates these plans are underfunded by $165 billion. The PBGC itself ended last year more than $21 billion in deficit.
Not a Bailout, Casey Says
In a May 27 hearing of the Senate Committee on Health, Education, Labor, and Pensions, Casey argued his proposal is not a union bailout.
“Private employers are the entities that contribute funds to the multiemployer plans—not unions,” Casey testified. “In fact, I have a letter from the United States Chamber of Commerce, specifically stating that this bill is not a union bailout. I have with me today three letters—one from YRC Worldwide, North America’s largest trucking company. YRC employs 40,000 people across the nation, with over 1,000 in the Commonwealth of Pennsylvania. For YRC, this issue is about jobs. There is a risk that YRC could go bankrupt without the assistance that my bill provides.”
Casey pointed to big losses suffered by pension funds as a result of the economic downturn and added, “By lowering the cost of contributing to the plan for all employers involved, more capital is available to reinvest in their companies—which creates jobs.”
At that same hearing, though, Sen. Mike Enzi (R-WY) said the possibility of a taxpayer bailout is “extremely dangerous,” adding, “We have to ensure the taxpayer is not on the hook.”
‘Proposal Makes Taxpayers Liable’
In her Senate committee testimony, Assistant Labor Secretary Phyllis C. Borzi noted, “The proposal would transfer responsibility to the PBGC for payment of the full plan benefits of participants transferred to the partitioned plan, which in many cases would be well above the amount guaranteed by the PBGC under current law.”
She added, “The proposal makes the taxpayers liable for paying the benefits of the partitioned plan. Currently, no other benefit obligations assumed by PBGC are subject to the full faith and credit of the U.S. government. Under current law, the PBGC receives no funds from general tax revenues. PBGC operations are financed by insurance premiums set by Congress, and paid by plans, investment income, and for the single-employer plans, assets from pension plans trusteed by PBGC and recoveries from the companies formerly responsible for the plans.”
Borzi said, “A small number of multiemployer plans . . . are facing severe long-term financial problems that short-term funding relief will not solve. A number of trends have made it unlikely that these plans will recover unless they receive dramatic funding relief or other changes to the pension insurance program are made.”
These trends include sharp declines in particular industries that have slashed the number of employers and the ratio of active workers to retirees.
‘Giving Unions a Free Ride?’
Labor expert David Denholm, president of the Public Service Research Foundation, said he sympathizes to a degree with Casey’s bill but believes it could be considered a union pension bailout.
“With multiemployer plans, if one employer goes broke, all other employers in the plan are on the hook for what the other employer owed. There is some injustice in there,” Denholm said. “The other side of the coin is that unions are notorious for mismanaging and abusing those pension funds. Are we just giving unions a free ride on mismanagement and corruption? I think it probably cuts both ways.”
A former public affairs chief of staff for the U.S. Department of Labor, Rick Manning, said the bill “would ask the vast majority of working Americans without a defined pension to put less into their personal retirement account in order to preserve the status quo of union member retirees.
“This is a perfect example of the government playing backward Robin Hood, taking from those who are mostly without fixed pensions, in order to preserve the comfort level of those who have union pensions,” he added. Manning is now communications director for Americans for Limited Government.
Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.