Union Pension Fund Swindles, Their Democrat Henchmen, and the Beknighted Taxpayer

The unions prefer defined benefit pension plans to defined contribution pension plans.  They claim they want the risk in the plans to be with the employer, not the union member.  Defined benefit plans are either single employer plans or multiemployer plans.  The unions tend to prefer the latter, especially in heavily unionized industries such as construction, transportation, hotels, food, and entertainment.  The multiemployer plans were created by the Taft-Hartley Act of 1947 and allow workers to leave one company in the same industry for another while remaining in the same union or the same multiemployer agreement.  About 20% of workers in defined benefit pension plans are in multiemployer plans, or about 10 million active and retired workers.

There are about 1,500 multiemployer-union pension plans in the United States.  A pension plan that is less than 80% funded to meet its liabilities is defined by the Pension Protection Act of 2006 as endangered.  If it has less than 65% of the assets needed to meet obligations, it is defined as critical.  According to studies by Diana Furchtgott-Roth of the Hudson Institute and by economist Andrew Brown, in 2006 before the recession arrived, only 17% of these union plans were fully funded, though 35% of non-union defined benefit plans were fully funded.  Only 59% of union multiemployer pension funds were above endangered status, though 86% of non-union plans were.  13% of union plans were in critical status, while only 1% of non-union plans were.

It seems that unions are systematically eager to "win" higher retirement benefit payouts to their members so they can win re-election and members will stay with the union.  But, they are not diligent in seeking to keep the pension plans secure and safe.  In fact, in 2006, of the 438 union pension plans in critical condition, only 5% were even contributing enough money to pay for the current costs.  In comparison, there were 54 non-union defined benefit plans in critical condition, but 39% were at least meeting current annual costs with contributions.

The Government Accountability Office studied multiemployer plans over the time period of 1980 to 2006 and found that in 1998 the number of contributing active workers was equal to the number of retirees on the plans.  Presently, the Teamsters union Central States pension fund has four times as many retired workers as active workers paying into the plan.  There are many union members who expect retirement payouts of $60,000 a year who are likely to receive only the Pension Benefit Guarantee Corporation maximum of $12,870 per year for a union worker with 30 years of work!  The unions hide this possibility from their members.

Since the recession hit, the situation with underfunded pension plans is worse for most defined benefit plans, but most especially for the union multiemployer plans.  The 230 critical condition pension plans of 2008 were up to 640 in 2009, despite the reporting requirement actually lagging the present condition of these plans.  In hard times, more companies fail.  In these multiemployer pension plans, the remaining companies in the plan have to pick up the costs of the pensions for the employees in the plan who may never have worked for them. The burden of covering the orphaned workers can become huge.  Since unions in the private sector are very skilled at killing their employer, this is a common problem.

Many plans which have experienced failing companies, are very dependent upon bringing new workers into the plan.  This is a very strong incentive for the unions to force new companies to unionize to keep the Ponzi scheme going.  The card check, or the words-have-no-meaning Employee Free Choice Act bill which was so strongly desired by the unions, was to serve this purpose.  That plan, having failed to pass Congress, has now been supplanted by Senator Casey's (D, PA) bill, the Create Jobs and Save Benefits Act of 2010, which he hopes to get passed in the Lame Duck session of Congress after the Democrat's election Armageddon.  Representatives Earl Pomeroy (D, ND) [who appears to be losing re-election] and Patrick Tiberi (R, OH) have a union pension bailout plan called the Preserve Benefits and Jobs Act of 2009, which they introduced a year ago.  In July 2009, I posted Is a Government Take-Over of Pension Plans Coming?  If the Democrats have their way, it apparently is.

How big a liability are these Congressional hacks selling out the American People on?  We do not know.  But, last September Moody's Investor Services examined the Labor Department's Form 5500 reports of 126 multiemployer pension plans in 2007.  Remember this is only 126 plans out of about 1500!  In 2007, they said these plans were only 77% funded, with a total funding shortfall of $87 billion.  Moody's estimated that the 2008 data for these funds would show that they were only 56% funded and the shortfall would be about $165 billion.  Brett McMahon, vice president of Miller & Long Construction Co., an expert in the union pension fund issues, believes the total unfunded liability for the 1500 plans may be about $700 billion!

This building crisis is about to collapse the dam.  The Financial Accounting Standards Board (FASB) is likely to implement a new rule to take effect on 15 December requiring that companies more accurately report their liabilities for their multiemployer pension plans.  When the Kroger grocery store chain reported its multiemployer pension plan liabilities had more than doubled in a year to $1.2 billion, it mortified stock analysts and credit agencies.  YRC Worldwide, a trucking company, owed about $2 billion to various multiemployer pension plans in 2009 and about half of that will be paid to retirees who have never worked for a YRC Worldwide company.  The UPS paid $6.1 billion to leave the Teamsters Central States pension fund in 2008, before it declared it was in critical status in 2009.

These huge liabilities now greatly concern Moody's and Standard and Poor's.  They concern Wall Street and bankers and creditors, at least those on their toes.  After the new reporting requirements take hold on 15 December, many more of these banks and creditors will become aware of the problem.  This will be cause for considerable new economic woe.  The resulting situation will be very bad for many unionized companies and terrible for the private sector unions.  The Republicans will control the House of Representatives.  Redistricting according to the 2010 Census will probably help the Republicans to keep future control.  With unionized companies collapsing more rapidly because no banks will loan to them if they are liable for multiemployer pension funds, the funds will collapse catastrophically as company after company collapses.  The unions will be smothered with class action lawsuits by their members for being negligent in protecting their retirements.  And, the unions days of buying elections for the Democrats will be over, except for the public sector unions.

The SEIU, which is so close to Obama and the Democrats, already has announced that its multiemployer pension fund is in a critical status.  That happen in early 2009.  Many more union pension funds will follow.  Can you imagine the sense of betrayal many of the today's union members will feel?  Especially since Furchtgott-Roth and Brown found that union staff have much better funded pension funds than do union members.  Even worse, union officials have much better funded pension plans than do the union staff!  It seems the union officials were always well-aware of the shaft they were giving to their members!  They protected their elitist selves, while committing a serious fraud upon their members.

Chris Edwards - Public-Sector Unions

Labor unions in the private sector have long had a decreasing membership, especially as a percentage of the private sector workforce, which in 2009 was 7%.  Public sector unions have retained a high and nearly constant percentage of the public sector workforce, presently at 39%.  Since this workforce is growing and since government workers have an out-sized political influence and power, this 5.6 times greater presence in the government workforce is a troubling circumstance.  It is causing a great deal of income produced by the productive private sector to be transferred into the parasitical public sector, where workers are paid much better and have much, much better benefits.  The workforce percentages are plotted below.

Chris Edwards, Director of Tax Policy Studies at the Cato Institute has written a good article on Public-Sector Unions and their growth in the Cato Institute Tax & Budget Bulletin, No. 61, March 2010.  Important points in the historical background and the present situation are:

• Before 1960, unions represented less than 15% of state and local government workers.
• The courts generally did not allow public-sector employees the collective bargaining allowed private-sector workers by the 1935 Wagner Act.
• In the 1960s and 1970s, states passed laws that required or encouraged collective bargaining by state and local government workers.  Many states passed laws to require union-represented government workers to pay union dues and fees.
• 26 states have collective bargaining for nearly all state and local government workers today.
• 12 states have it for some local and state workers now.
• 12 states do not allow collective bargaining for government workers.
• The states that require collective bargaining all have half or more of government workers unionized.
• States with no collective bargaining average 17% union membership.
• 28 states have agency shop rules, which require workers to join the union or to pay it fees.
• 22 states are right-to-work states where workers cannot be forced to join a union or pay union fees.
• Some states allow some government workers to strike and some require arbitration, which usually favors the unions.

Union representation increases the cost of government greatly.  Union members are paid 31% more in wages and have an incredible 68% greater benefits.  Since states with higher wages generally are also more unionized at the state and local government levels, the wage advantage corrected for that is about 10%.  But unions promote inefficient government by protecting poor performing workers, emphasizing rules rather than getting the job done, push for excessive staffing, and they discourage volunteer work.  They also go on strikes, such as the recent Philadelphia transit worker strike which for six days wrecked havoc on the 800,000 city residents who used the transit system.  Government unions, unlike private-sector unions, do not need to worry that excessive employee pay increases will put the employer out of business.

The 22 states with 40% or more of government workers unionized are almost uniformly in serious trouble with huge future taxpayer liabilities for these pampered government union workers.  My state of Maryland, with 41% government worker unionization, for instance, has very serious future liability problems.  We hear more frequently about the problems of state and local employees and their benefits and high pay in California with a 58% government worker unionization rate and New York with a 73% union rate.  In Rhode Island, with the second highest government employee unionization rate of 71%, the government unions have long been dominated by organized crime.  The same is true of the Cleveland city workers unions, where I used to have a neighbor whose father was an important city union leader who used to come over periodically and shout at his son that even he had to go to work sometimes for the sake of appearances.  His son was a ghost worker.

The largest public-sector labor unions are the National Education Association (NEA), the American Federation of Teachers (AFT), the American Federation of State, County, and Municipal Employees (AFSCME), and the Service Employees International Union (SEIU).  We hear a lot about the SEIU lately due to its close ties with Obama and the many special interest joint activities of the two.  The NEA and the AFT collect about $2 billion a year in membership dues and fees, mostly from states with agency shop rules, so they have deep pockets.  In the last two decades, AFSCME was the second-largest contributor to election campaigns in the U.S.  The NEA was the 7th largest contributor, the SEIU was the 10th largest, and the AFT was the 15th largest.  The SEIU pulled out all the stops in its effort to get Obama elected.  Public service workers also vote in higher percentages than most Americans.  These unions strongly favor increased government spending and higher taxes, they hate school choice and privatization efforts, and generally oppose any efforts to improve government efficiency.

Edwards points out that collective bargaining is inconsistent with our Constitutional right to freedom of association.  He advises that states should follow the examples of Virginia and North Carolina, who do not allow collective bargaining by government workers.  This avoids such problems as Governor Chris Christie is having in New Jersey, with a 66% government worker unionization rate, with the state budget and government worker wages and benefits.

I believe that the legitimate functions of government are so vital that they should not be entrusted to workers who may strike or go on work slowdowns.  Their workers should not have other allegiances than to the citizens they serve.  Many of them, certainly including teachers, should be professionals who should shun labor unions.  Labor unions are for unskilled and semi-skilled workers, not professionals.  When people who are supposed to be professionals join labor unions, they quickly lose their professional work ethic.  This is one of the key reasons why American education has become so deficient.  Of course, governments have greatly exceeded their legitimate functions and this seems to undermine the argument against government worker unionization.  This is just another reason why it is critical to force governments to limit their powers to those which are legitimately protecting and preserving the sovereign rights of the individual to life, liberty, and the pursuit of happiness.