Union bail-out has Republican supportersEconomics, Fiscal Policy, Policy — By Online Editor on June 9, 2010 at 8:30 AM
(Michigan Capitol Confidential) Michigan Congressman Thad McCotter, R-Livonia, is one of just nine Republicans nationwide to co-sponsor legislation that seeks to bail out union pension funds and put taxpayers “on the hook for $165 billion in unfunded union pension liabilities,” according to Americans for Limited Government. McCotter is also the only Michigan U.S. House member from either party to co-sponsor the bill, H.R. 3936, which was introduced by North Dakota Democrat Earl Pomeroy and has 43 total co-sponsors.
One former co-sponsor, Republican Mike Pence of Indiana, removed his name from the bill in late April, and Americans for Limited Government is asking the remaining co-sponsors to do likewise. ALG sent an open letter specifically to the nine other Republicans — including McCotter — whose names remain on the bill.
In a news release, ALG President Bill Wilson noted that “labor bosses” spent “hundreds of millions of dollars” to support President Barack Obama, the Democrat majority in Congress, and the nine Republican co-sponsors. Wilson also accused the unions of having the “audacity to try to cash in on their political investment” by passing the bill and loading the liability onto taxpayers who are already “struggling to fund their own retirements.”
Records from OpenSecrets.org show that McCotter has received more than $870,000 in total funding so far this election cycle, with at least $78,000 of that coming from political action committees run by labor unions. A few examples include the Teamsters ($2,000), Laborer’s International Union of North America ($5,000), AFSCME ($1,000), United Brotherhood of Carpenters and Joiners ($2,500), Longshoremen’s Association ($2,500) and the International Brotherhood of Electrical Workers ($2,000).
By way of contrast, U.S. Rep. Mike Rogers, R-Brighton, represents the GOP district closest to McCotter’s — abutting it on the northern and western borders. With slightly more than $1 million raised for his campaign war chest this election cycle, just $7,000 of Rogers’ funding comes from organized labor PACs.
The Pomeroy bill that concerns ALG would amend the law regarding multi-employer union pension funds. These are pensions that cover several unionized employers at a time, theoretically giving workers from a single union pension protection by spreading the risk of any particular employer going bankrupt and being unable to pay its pension promises.
Jack Daly, the communications director for McCotter’s office, said on Thursday that ALG and critics of the bill are “well-meaning and sincere, but mistaken” about its impact. He characterizes the legislation as providing companies more time to meet pension obligations, and rejects the notion that it’s a taxpayer bailout.
Daly also rejects the claim that the bill is doing the bidding of labor unions, and says it was the companies that asked for the legislation. He notes that both the National Association of Manufacturers and the U.S. Chamber of Commerce have endorsed it. A letter from the U.S. Chamber also denies that the bills provide a “union bailout,” noting instead that it is the unionized companies that fund the pension plans.
But ALG is hardly alone in its criticism. On Thursday, more than 50 free market organizations and individual leaders at the state and national level sent an open letter denouncing the bill to the congressional leadership and the president. Some of the more well-known opponents of the bill in the small-government movement are Americans for Tax Reform, the National Taxpayers’ Union, and Citizens Against Government Waste.
Noting a widely used Moody’s Investor Services estimate from last year which stated that multi-employer funds are underfunded to the tune of $165 billion, Diana Furchtgott-Roth, an adjunct fellow with the Manhattan Institute wrote in Real Clear Markets on April 8 that just 6 percent of the multi-employer union pension funds were fully funded.
What caused the underfunding?
“Some union leaders like to achieve wage increases and new benefits when they renew collective contracts, in order to make their reelection more likely,” she explains. “Ensuring that pension plans are kept well-funded takes more work for little visible effect — and may well work against winning more benefits by underscoring their cost to the employer.”
Likewise, writing in The Washington Times, labor union watchdogs F. Vincent Vernuccio and Jeremy Lott asserted on May 25 that the Senate version of the bill should be called the “Bail Out the Irresponsible Unions Act.”
The authors note that the boards of the multi-employer funds, and therefore the decisions made by them, are heavily weighted toward organized labor. They say that a single union, such as the Teamsters, generally provides half of the membership, with the various employers who have workers represented by that union collectively providing the rest.
The employers, however, still provide all of the money.
“H.R. 3936 does not require that a union cut benefits, have participants pay part of the pension costs, change retirement ages, limit access to younger employees, or use union dues to supplement the plan,” notes ALG’s Wilson. “It doesn’t require that unions negotiate for higher pension payments from employers in lieu of other benefits. Instead, it merely throws the unfunded liabilities onto the backs of taxpayers — a potential $165 billion dollar bailout.”
According to the limited-government critics, both the unions and the companies in these sinking financial boats are seeing the consequences of underfunding and asking for a bailout.
Vernuccio and Lott explain that a federal pension insurance plan called the Pension Benefits Guarantee Corp. underwrites multi-employer pensions using premiums paid by the pension plans. But if an entire multi-employer plan were to go bankrupt, PBGC would only cover $12,870 per year for each retiree.
In contrast, the Pomeroy bill would up that to $21,000 per year, and according to Vernuccio and Lott, the legislation will “put taxpayers on the hook for the pensions of union workers” rather than raising the pension funds’ insurance premiums.
But that’s not all. The authors continue:
The bills would create a special “fifth” fund to help pre-emptively bail out struggling multi-employer pension funds. The fund would apply to so-called “orphans” – workers of companies that had to leave the plan because of bankruptcy – in union pension funds that have twice as many retirees as workers and owe two times the amount of benefits that they receive in contributions. PBGC would take retirees in the plans that worked for bankrupt companies and put them in special segregated plans.
Retirees in partitioned plans would receive their full benefits courtesy of the U.S. taxpayer. The bill states that obligations of this “fifth” fund would be “obligations of the United States” – and no longer just by PBGC insurance premiums. Taxpayers could be on the hook for even more, too. A provision in both bills would allow the fifth fund to transfer money to other parts of PBGC. That means that the fifth fund could be the camel’s nose under the tent, using taxpayer dollars to shore up the deficit-ridden PBGC. According to the corporation’s own report released earlier this month, it had a deficit of almost $22 billion in September 2009. By 2019, the shortfall is expected to balloon to $34 billion.
“But it’s a vicious circle,” writes Furchtgott-Roth, predicting this to be the start of something worse. “Once PBGC took over some plans, other employers would want to declare bankruptcy, unload plans on the PBGC, and reorganize under another name. The incentives to do this would be enormous, because companies bailed out by the PBGC would be free of onerous pension obligations and hence would acquire a competitive advantage.”
She also notes that incentives for prudent financial behavior would be tossed out the window:
By bailing out the plans, Congress would be compromising the remedial provisions of the Pension Protection Act of 2006. The Act requires underfunded pension plans to put their houses in order by raising retirement ages; increasing contributions by employers, workers, or both; and lowering benefits. A bailout would remove any incentive for multiemployer pension plans to reorganize their plans responsibly.
The Teamsters, Service Employees International Union (SEIU), and Laborers International unions are on the list of “significantly underfunded” multi-company pensions eligible for bailouts under the Pomeroy bill, according to the statement by ALG.
McCotter directly responded to the concerns with a short statement on the floor of the U.S. House, saying:
What it does is good government. It allows employers the space they need to make sure they meet the pension obligations that they have to their workers.
It is not a bailout. Taxpayer funds are not involved unless, of course, these institutions — these unions and their pension plans – fail.
It is a wonderful idea from my colleague [GOP Congressman] Pat Tiberi. It is endorsed by many, many, business groups, and I would hope that over the course of the coming hours the truth will out. Again, you can’t always believe what you see on TV.