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Look for the Union Fable

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Look for the Union Fable

Flanked by representatives from the International Brotherhood of Teamsters, YRC Transportation and ABF Freight Systems, Sen. Bob Casey, Pennsylvania Democrat, proposed a massive bailout for the Teamsters' and other union pension funds on March 22. The deceptively named Create Jobs and Save Benefits Act of 2010 (the Save Adorable Fluffy Bunnies Act was taken, apparently) should really be called the Bail Out Irresponsible Unions Act. That is exactly what the bill would do.

After denying for years that their pension funds were in trouble, labor unions of late have been forced to admit that union-managed multi-employer pension funds are in wretched shape. Moody's Investor Services estimated multi-employer pensions were underfunded by $165 billion in 2009. Because of labor mismanagement, millions of current and former workers' retirements are in real danger. Labor is doing everything it can to buy time and shift the blame elsewhere.

The Teamsters' Central States Fund has been woefully underfunded for years. It had only 47 cents on every dollar owed in 2007 and likely is much worse today in light of the recent economic downturn. United Parcel Service understood the severity of this problem and paid an astounding $6.1 billion in withdrawal fees in 2007 just for permission to back away from that actuarial ticking time bomb.

When Reps. Earl Pomeroy, North Dakota Democrat, and Pat Tiberi, Ohio Republican, introduced a similar bill last fall, Teamster President James Hoffa Jr. blamed the Pension Protection Act (PPA) of 2006 for "greatly and unnecessarily accelerated funding requirements for many plans," which "hastened the [pension] crisis." What it did really was finally force the unions to come clean about the crisis. The PPA required the Teamsters to send letters to thousands of workers telling them their pensions were in critical status - less than 65 percent funded - meaning that future retirees might not get as much as promised and even current retirees could be in trouble. Many union leaders were against the PPA because it meant they could no longer tell members that their pensions were in good shape.

Mr. Hoffa asserted, incredibly, that multi-employer plans are "not controlled by unions" because they are "operated by management-labor boards" and legally "independent of unions and companies." Multi-employer pension boards, in fact, consist of several companies that contribute half of the trustees and generally a single union that contributes the other half. The deck is heavily stacked for labor control.

When pension funds prove unable to pay their obligations, the Pension Benefits Guarantee Corp. (PBGC) steps in to provide relief for workers. PBGC is financed by insurance premiums on private pension plans. Union pension plans pay a much lower premium, and their workers are insured at a much lower rate than retirees in single-employer plans. Retirees in union pension plans are insured only up to $12,870 per year. The House and Senate bills would increase this coverage to $21,000 and put taxpayers on the hook for the pensions of union workers.

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.

According to Mr. Casey's summary, the legislation would be targeted to the Teamsters' "Central States Pension Fund, a few other Teamster-based pension funds and one other union-based large multi-employer plan (subject to the approval of the PBGC.)" But that's far from the whole of what the bill might allow.

To start, it would reward unions for past bad behavior by leaving them in charge. When a PBGC has to fund an insolvent plan, it controls the benefits and payments. The segregated plans in the fifth fund - known as a partition - would be controlled by the same trustees who failed to adequately fund the original plan. According to Mr. Casey's own office, "PBGC [would] not provide notices, calculate benefits or in any other form administer the plan."

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.