The second existential threat to unions is the imminent pension crisis. When union pensions are discussed, invariably public sector unions get the most attention, simply because the numbers are impressively large. (California has $535 billion in unfunded state pension liabilities, or more than the annual GDP of Saudi Arabia.) There’s much uncertainty as to how the shortfalls will be addressed. The options run the gamut from the aforementioned tax increases and legislative restraints to the creation of a path for state bankruptcy, and these have been hotly debated.It's a long article, but read the whole thing.
What is rarely discussed is that the pension problem is actually more acute and immediate among private sector unions. This has to do with the unique nature of private sector union pension plans. There are about 1,500 "multi-employer" pension plans in the United States covering 10.1 million workers. In these plans, several unionized businesses join together to provide a single, collective retirement plan for all their employees. Unlike 401(k)s and other defined-contribution plans, which belong to the individual and so encourage labor mobility, defined-benefit plans are typically tied to the job. Multi-employer plans were created to allow for some degree of labor mobility within unionized sectors.
The catch is that multi-employer plans are governed by what’s known as "last man standing" accounting rules. Here’s how they work: If there are five companies in a multi-employer plan and four of them go bankrupt, the fifth has to assume the pension obligations for all of the employees from the four bankrupt companies, known as "orphans."
Getting a handle on multi-employer pension liabilities has always been notoriously difficult, and concern about their viability has grown as American union membership has dwindled in the face of globalization and technologically driven gains in productivity. A recent Government Accountability Office report found that as of 1998 the number of union members paying into the plans was equal to the number of retirees receiving benefits. The Financial Accounting Standards Board recently noted in a press release that a "study of over 100 multi-employer plans, including the largest plans in the country (as measured by assets), indicated that in 2008 those plans were collectively underfunded by over $160 billion (approximately 44 percent of their collective plan liabilities)."
The Teamsters union plan alone has four times as many retirees drawing benefits as employees paying in. Which is why, in 2007, UPS coughed up a staggering $6.1 billion to buy its way out of the Teamsters multi-employer pension plan, figuring this was cheaper than assuming the unions’ collective pension liabilities later on. (Trucking company YRC, one of the largest remaining Teamster employers, publicly asked the federal government for $1 billion in TARP funds to cover pension obligations in 2009. The company eventually withdrew the request.)
UPS’s withdrawal from its multi-employer plan also highlighted the issue of transparency. Previously, it was assumed that UPS’s pension liabilities were around $4 billion, and Wall Street analysts were stunned when it turned out they far exceeded that figure. Then in 2009, the Street was shocked again when the grocery chain Kroger disclosed in a footnote to its SEC filing that it had $1.2 billion in pension liabilities.
Until now, companies have been required to disclose only their contributions to multi-employer plans. But ratings agencies and financial markets have started insisting on transparency--and the Financial Accounting Standards Board, which has de facto statutory authority from the SEC, is set to enact a rule in the second quarter of this year that requires disclosure of multi-employer liabilities.
Adding these liabilities to the balance sheets of union employers could make it nearly impossible for them to get loans, lines of credit, bonding, and the kind of financial assistance that is the lifeblood of many unionized sectors such as construction.
How are unions reacting to the prospect of this new rule? "The blind panic is un-frickin'-believable," says Brett McMahon, a longtime union critic and vice president of Miller & Long Concrete Construction. The rule could well accelerate bankruptcy in many union businesses or force companies to scramble out of the yoke of unionized employment.
Regardless, the problem of bankrupt union pension plans is not going away. It’s more than likely a number of big union pension plans will go bankrupt. All of a sudden, union employees who were expecting generous pension plans will be dumped onto the Pension Benefit Guaranty Corporation, the government-sponsored enterprise that backstops pension plans. The maximum payout is just under $13,000 a year, or "dog-food money," notes McMahon.
That’s when things are likely to get really ugly. Multi-employer pension plans are by law governed by boards equally divided between employer and union representatives. There’s already no love lost between rank-and-file union members and the class of political consultants and executives that has come to dominate union leadership. Both of the SEIU’s national pension plans issued "critical status letters" to their members in 2009--the Pension Protection Act requires such letters to be issued when funds can cover less than 65 percent of their obligations. The SEIU, however, maintains a separate pension plan for its national officers that was funded at 98.3 percent, according to the latest data.
Expect waves of class action lawsuits over pension mismanagement aimed at recouping money from the employers and unions responsible. This could well bankrupt unions. And when union pension plans begin failing, unions will be deprived of perhaps their biggest selling point--job stability with unrivaled retirement benefits.
For some time now, big labor has been convinced that it needs a bold political solution to its existential woes--either something that radically alters labor laws to allow unfettered forced unionization or a bailout that could run into the hundreds of billions of dollars.
In the hope of achieving the former under Obama, organized labor rallied around the Employee Free Choice Act, popularly known as Card Check. Despite its Orwellian formal title, this bill proposed to end the right of an employer to demand a secret ballot election of employees before the employer must recognize a union. Under Card Check, organizers could form a union by getting workers to sign cards declaring their support for unionization. This would allow unions to identify publicly workers opposed to unionization and use coercive tactics against them.
While unions hoped that Card Check would rapidly reverse the decline in their membership, the scheme was also meant to help fix their pension plans. Once companies were unionized, the power of collective bargaining could force them to join foundering multi-employer plans, shoring these up. Accordingly, the AFL-CIO declared Card Check legislation "the number one priority of America’s union movement."
With Democrats controlling Congress and a labor champion in the White House, unions seemed confident Card Check would pass. The legislation was introduced in both houses of Congress in March 2009, and Obama, Vice President Biden, and Secretary of Labor Hilda Solis all made public statements in support of it.
Then . . . nothing. Card Check stalled as business interests such as the Chamber of Commerce became increasingly vocal in their opposition.
Big labor pursued other political solutions. Senator Bob Casey of Pennsylvania introduced the Create Jobs and Save Benefits Act of 2010, which was criticized as a bailout of multi-employer pension plans. It was actually worse than that. The bill would have essentially created a new entitlement by requiring taxpayers to backstop union pension plans in perpetuity. Casey’s bill went nowhere--and, adding insult to injury, Representative Earl Pomeroy, the North Dakota Democrat who’d sponsored the bill in the House, was defeated last November.
As it became clear last year that a Republican takeover of the House was inevitable, some feared that Democrats would make a truly radical move in the lame duck session of Congress to save their biggest campaign donor. Just weeks before the election, Democrat Tom Harkin of Iowa and Independent Bernie Sanders of Vermont held a hearing of the Senate Committee on Health, Education, Labor, and Pensions (HELP) exploring Guaranteed Retirement Accounts, or GRAs. These are a union-backed plan to create a national retirement system that would in effect force Americans to stop putting their retirement savings into private 401(k) accounts and to send their money to the government instead.
But the lame duck session came and went without any bold Democratic move to save the unions. Democrats were thumped in November, and Republicans took control of the House of Representatives with a 48-seat majority. In a radio interview on March 22, Senator Sherrod Brown, a pro-union Democrat from Ohio, confirmed what many suspected. Card Check was "not going to happen now," he said. If Card Check was dead, the American labor movement’s biggest reason for hope had been snuffed out.
Friday, April 22, 2011
The best and most comprehensive review of recent union politics is Mark Hemingway's Unionsdämmerung in the April 25th Weekly Standard: