September 2, 2010
by Diana Furchtgott-Roth
This Labor Day some labor union officials should be concerned. The Financial Accounting Standards Board, a private organization that sets the standards for financial standards, is considering a proposal that would require companies to disclose their potential liability from collectively bargained multiemployer pension plans.
With the liability on view for all to see, it would be difficult for unions to assert to potential new members that failing pension plans are solvent. Unions would lose a valuable tool to recruit new members.
What are multiemployer plans, and why does FASB want their liabilities reflected on companies' books?
Multiemployer pension plans are created and sponsored by unions to generate retirement income for employees of different companies. These plans allow workers to take their pensions with them if they move to another participating company, and facilitate consolidation of union pension contributions into larger investment pools.
Although unions assure workers that union pension plans are more secure, multiemployer pension plans have lower levels of funding than do plans sponsored by of nonunion labor. This disparity in funding adequacy is evident in Labor Department data for 2007, the latest year for which complete reporting is available.
Since the 2008 stock market crash, the plans are likely in worse shape today.
Congress considers funds with less than 80 percent of needed assets to be in "endangered" status, and those with less than 65 percent to be in "critical" status. The Labor Department lists critical and endangered plans on a Web site at http://www.dol.gov/ebsa/criticalstatusnotices.html.
In a new study by the Hudson Institute published Wednesday, my associates and I examined the funding status of all 2007 pension plans, using Labor Department data.
Among all large plans -- those with 100 or more employees -- only 18 percent of union-negotiated plans were fully funded in 2007, compared with 39 percent of nonunion plans.
Twenty-four percent of union plans were in endangered status - less than 80 percent funded - compared with 9 percent of nonunion plans. And while 12.5 percent of union funds were in critical shape with less than 65 percent of required assets, 1.5 percent of nonunion plans were in critical shape.
Meanwhile, a few members of Congress have introduced bills that would have the government - that is, the taxpayers - rescue some plans.
If the federal government were to bail out the pension funds, taxpayers would take a substantial hit. In 2009 Moody's estimated that multiemployer plans were underfunded by at least $165 billion.
Reps. Earl Pomeroy, D-N.D., and Patrick Tiberi, R-Ohio, would rescue multiemployer pension plans with their proposed Preserve Benefits and Jobs Act. It would set up a "fifth fund" that would give the Pension Benefit Guaranty Corp. unlimited funds to bail out the multiemployer plans.
The Pomeroy-Tiberi bill would raise the annual amount the PBGC would pay to retirees in failing multiemployer pension plans from $12,870 to $20,000 per year.
A companion bill pending in the Senate, the Create Jobs and Save Benefits Act of 2010, is sponsored by Sen. Robert Casey, D-Pa.
With deficits stifling the economy, it's manifestly unfair to make taxpayers, already in trouble themselves, pay for underfunded union pensions, which were in trouble well before the latest recession.
As employers and unions had reason to know from the beginning, many firms have too few young workers, too many old workers, life spans are lengthening -- and contributions by both sides were predictably inadequate.
FASB is to be congratulated for shining a light on underfunded union pensions. But spending billions of taxpayer dollars on their rescue would swell the deficit still further, harming the economy and destroying jobs rather than creating them.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, was a Senior Fellow at Hudson Institute from 2005 to 2011.
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