Many multi-employer plans are struggling after years of financial hits especially after the last recession. Along with the value of the plans going down, as the boomer generation is reaching retirement age, every year the number of people tapping those retirement funds hits a new record.
A 2009 study from ratings firm Moody's Investors Service estimated that the country's largest multi-employer plans have long-term deficits of about $165 billion (108 plans). The report is summarized at the end of this post.
According the Wall Street Journal, things are even worse than the Moody's report indicates. The number of union-run pension plans may be in the hundreds.
Big Labor is desperate about the issue, should these pension plans collapse its curtains for the Union Leaders and it would not be the best recruiting tool for the labor movement in general. Adding to the crisis is a proposed new accounting rule that may expose that the pension "emeror" has no clothes. While Congress is on vacation, union lobbyists are feverishly pushing for the federal government to bail out the troubled multi-employer pension plans via S.3157 The Create Jobs and Save Benefits Act of 2010
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to introduce legislation to cordon off "orphaned" pensions—those for which an employer has stopped contributing or withdrawn from the plan—and drop them on the federal Pension Benefit Guaranty Corporation.The federal agency, Pension Benefit Guaranty Corporation (PBGC), is already significantly underfunded and tax dollars are the "go to" place for more funding. The Casey bailout could dump as much as $165 billion in new liabilities on the PBGC.
This cause has taken on new political urgency, and no less than Senate Majority Whip Dick Durbin has endorsed the bill. The reason for the rush is new rules that may soon be issued by the Financial Accounting Standards Board (FASB), the green-eyeshade outfit that dictates how companies keep their books. Those proposed rules would expose the multi-employer time bomb.
Here's why. In 1980 an amendment to the Employee Retirement Income Security Act established the principle that any company in a multi-employer plan had a right to assume that other members would pay in perpetuity. Those that did not, and left the plan, were required to pay a "withdrawal penalty" to make the plan whole. This is fine in theory, though in reality these penalties have rarely covered the true cost of withdrawal, which means liabilities for remaining companies have continued to grow.
As plan obligations climb, and a mediocre stock market has reduced fund assets, more companies are running for the exits. Most notably, UPS was willing pay a remarkable $6.1 billion in 2007 to flee its plan. FASB's new rules are likely to acknowledge this new corporate reality, and they would in effect require companies to assume that they must pay the withdrawal penalty, and therefore to include that liability on either an income statement or balance sheet.
Ouch. Many companies have withdrawal liabilities that exceed their assets, and the result would be a painful reckoning. The accounting changes would also embarrass Big Labor, exposing its pension promises as bankrupt and perhaps leading to wholesale reform of multi-employer plans. One labor law firm, Groom Law Group, sent out an SOS in July, announcing its intention to form a group to fight the FASB rules, which it noted would put unions under "increased pressure at the bargaining table to decrease contributions and cut benefits." Anything but that.Here comes the Casey bill to the rescue. Progressive Democrats could shift orphan company pensions to the taxpayer, the liabilities for the remaining companies would fall dramatically and make their balance sheets look pretty again. Of course the systemic problem is not fixed an there is no downward pressure on union benefits. All thanks to the 88% of the country who are not part of a union, whose pension plans are not protected because they are not part of the progressive's favored class, union members. Unions and employers will be rewarded for their mis-management of pension plans, indeed Union leaders will be able to brag about their wonderful management and benefits as they recruit new union members.
I supposed the union leaders will keep quiet about those members who are already retired, under Casey's bill, S. 3157 payouts to current retirees would be limited to $21,000 a year, much less than what they are expecting.
If this all sounds like it could never pass, keep in mind this is the most willful Congress in modern history. Congress just completed paying off the teachers unions with $10 billion, and unions will put enormous pressure on Democrats to pass the pension bailout before they lose their huge majorities.And all this will come out of YOUR pockets.This administration with the help of the Progressives that run congress has already spend much of your tax dollars to bail out union members, the $800 billion plus stimulus plan was one example, The President's executive order, known as the “High Road Contracting Policy”gives preferential treatment to government construction contractors who hire union workers (or pay money to the unions if they don't) is another.
Many companies with multi-employer plans such as the trucking firm YRC Worldwide (organized by the Teamsters) are joining the union lobby effort, and more than a few Republicans could go along. The outrageous all too often becomes the inevitable with this Congress, and it will again unless taxpayers raise a ruckus.
The President who complains about special interests is hiding the fact that there is at least one special interest that owns the Democratic Party...The Unions.
Moody's Report Summary.
How bad off are the union pension plans? The best single indicator of a plan’s financial health is its Funding Percentage. A fully funded plan will have a funding percentage of 100%. A plan is underfunded when the percentage is below 100%. The lower the percentage, the greater the risk that benefits will not be available when they come due.
According to the Pension Protection Act of 2006 multi-employer (plans set through unions and company sponsors) plans are evaluated via their funding levels. To ensure retiree benefits are protected, when a multiemployer plan falls below certain funding levels, stronger funding requirements become effective under provisions of the Pension Protection Act of 2006. Plans whose funding levels are below 80% are referred to as “endangered,” while those below 65% are referred to as “critical.”
The list of 108 union pension plans below is from the Moody's September 2009 report. The ones in green print are at the endangered level, the ones in red are critical.