Senate Considers Union Pension Bailout

May 27, 2010 - 6:02 PM
A Senate committee will consider on Thursday a bill introduced by Sen. Robert Casey (D-Pa.) that critics say would create a taxpayer-backed bailout of multi-employer pension funds that are in critical financial condition.
Autoworkers, union members

United Auto Workers leave a Warren, Mich., assembly plant during shift change. (AP File Photo)

(CNSNews.com) – A Senate committee will consider on Thursday a bill introduced by Sen. Robert Casey (D-Pa.) that critics say would create a taxpayer-backed bailout of multi-employer pension funds that are in critical financial condition.
 
“Pension plans across the country have taken major losses because of the near economic collapse and the decline in the stock market,” Casey said in a statement upon introducing the bill in March. “My legislation would help correct these problems to protect the pensions of workers and unburden companies stuck paying a crippling expense that threatens its existence and the jobs of its employees.”
 
The bill, the Create Jobs and Save Benefits Act, establishes a new fund that would finance the struggling liabilities of multi-employer pension funds with taxpayer dollars. Those liabilities primarily come from “orphans”—employers that are part of a union pension plan but have since closed or gone bankrupt, leaving no new employees to pay in, but a number of retirees still in need of benefits.
 
The Casey bill would “partition” ailing pension plans, leaving the solvent part to continue running as usual, and placing the “orphans” into a so-called “Fifth Fund.” That fund would be part of the Pension Benefit Guaranty Corporation (PBGC), which has four other backstop funds that use only private money gleaned from participating companies.
 
Subsection (d) of the Casey bill describes the creation of the additional fund and specifically designates the obligations contained in it as new “obligations of the United States.”
 
Critics say the bill is another instance of putting taxpayers on the hook for private failures, and claim it will expose Americans to up to another $165 billion in liabilities.
 
The Free Enterprise Alliance held a conference call with press to discuss the bill as part of its “Halt the Assault” campaign, asking that the Obama administration “halt the assault on America’s free enterprise system.”


Brett McMahon, vice president of the non-union Miller and Long Concrete Construction and a representative of Halt the Assault, said the bill would affect about 3.5 percent of Americans and asked, “Why should the rest of the taxpayers be responsible for bailing them out?”
 
F. Vincent Vernuccio, an adjunct scholar at the Competitive Enterprise Institute who was also on the call, said that while there is not yet a cost estimate for the bill, the total liabilities in the ailing pension plans in question amount to $165 billion, a worst-case scenario.
 
When CNSNews.com asked whether there was a sunset provision on the new fund, or whether taxpayers would be on the hook indefinitely, Vernuccio explained that the Casey bill provided a window of opportunity of about a year for pension plans to apply for the money.
 
“But,” he said, “the (corresponding) bill in the House has no end in sight to that funding.”
 
That bill, introduced by Rep. Earl Pomeroy (D-N.D.), remains in the House Education and Labor Committee, to where it was referred at the beginning of the session in September.
 
Its Senate counterpart, the Health, Education, Labor and Pensions (HELP) Committee took up questions surrounding the Casey legislation on Thursday afternoon, where the Pennsylvania senator defended his bill against the bailout claims in the media.
 
“Frankly, a lot of the statements made in the press are just not true,” Casey said in his opening remarks. “They’ve used the word bailout, that this bill will cause a bailout. That’s not true. It’s nowhere near true. But I realize that ‘bailout,’ it’s a word that’s been freighted with a lot of controversy. It’s an incendiary word to use in the public press, but it just isn’t the case.
 
“(There are) also references to use the word ‘union,’” Casey complained. “Some like to use it as a way to denigrate and to cause conflict.”
 
Casey held up a letter from the U.S. Chamber of Commerce that claimed, “In fact, contributions to these plans are funded entirely by employers, not unions.”
 
But Vernuccio told CNSNews.com Thursday that multi-employer plans are in fact run by unions, and that the bill did in fact amount to a bailout of poorly managed unions plans.
 
“A multi-employer plan, by definition—this is what the bill is talking about—is made pursuant to a collective bargaining agreement. Collective bargaining agreements are how unions negotiate with employers,” the former Bush Labor Department lawyer explained.
 
“So, the money comes exclusively from the employer, but it’s managed between the union and the employer, and the difference is the union votes in a bloc (on how to manage the pension plans) and they control half the trustees—so, in effect, the unions are de facto in control of the plans,” he added.
 
“So, when Casey says it’s not fair to characterize this as union, I honestly am extremely taken aback.”
 
Vernuccio said the plans needed the taxpayer dollars because union officers typically are guilty of “overpromising” on what benefits they can deliver their rank-and-file members, and that the bill contains nothing to keep the mismanagement from happening in the future.
 
“They’re overpromising, right,” Vernuccio said. “In fact, actually the bill eases the requirements that they reform. So, they’ll be able to use accounting data like actuarial tables to fund these things less (in the future), and also what the bill does is it…leaves (the plans) under the control of basically the guys that brought these plans into the ground with their overpromising.”
 
Casey, however, wanted to steer the conversation away from union malfeasance and cautioned against leaving retirees without the benefits they had come to expect. “This is about retirees, and it’s about making sure we protect these employers as well,” he said Thursday.
 
Sen. Tom Harkin (D-Iowa), committee chairman, added that the debate was about giving people “the opportunity to retire with dignity and financial independence.”
 
After the hearing, the committee must now “mark up” the bill, debating it and adding amendments, before deciding whether to report it favorably to the full Senate for a vote.