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The announcements by Senators Arlen Specter (R-Penn.) and BlancheLincoln (D-Ark.) that they intend to vote against cloture on theso-called Employee Free Choice Act (EFCA) has taken the legislation outof the headlines for now, as EFCA supporters seem short of the 60 votes needed in the Senate to end debate.
But EFCAopponents should not become complacent. Organized labor and its alliesin Congress continue pushing this bill, and they are not about to goquietly. And this legislation may be even more damaging than even itsopponents think.
EFCA would makesecret ballots in organizing elections a dead letter by mandating theNational Labor Relations Board (NLRB) to certify a union as exclusivebargaining representative for employees at a company as soon as a baremajority of employees sign union cards. This process, known as “cardcheck,” exists under current law, but requires that employers forgo asecret ballot election.
Under EFCA,employers would have no say, and the union would be certified as soonas it collected signatures from 50 percent-plus-one of employees. Unionorganizers ask workers to sign cards out in the open, often underpressure. Many employees will sign cards just to be left alone.
EFCA’s card check provision helped provoke a backlash against the legislation as people found out more about it. However, EFCA’s second provision, which has not received as much attention, but could be even more devastating economically.
Justhow damaging? Enough to force some healthy companies into bankruptcy,according to one businessman whose company could be severely affected.Specifically, EFCA’s binding arbitrationprovision could lead to newly unionized companies being forced toassume unsupportable new pension liabilities. Thus explained BrettMcMahon of the construction firm Miller & Long, speaking at theHeritage Foundation this week.
EFCAsupporters have tried to sell the legislation’s binding arbitrationprovision as a guarantee of first contract. In fact, it’s a recipe fora government-imposed contract. Under this provision, the company andthe newly certified union have 90 days to negotiate a contract.
Ifthey have not reached a contract after that time, they must negotiatefor another 30 days, at the end of which period a federally appointedarbitrator may step in and impose a contract. This creates perverseincentives for union negotiators to stall, and thus get a lot of whatthey want through arbitration.
McMahon describes this120-day period as “a good time to start liquidating,” since newlyunionized companies would then be required to enter into union pensionfunds, most of which are supposed to back multi-employerdefined-benefit plans. “The problem’s they have no money,” he said.
Employerswho wish to back out of such plans must pay a withdrawal fee, because,unlike single employer private pension funds, multi-employer funds areinsured primarily by the participating employers, not the PensionBenefit Guaranty Corporation (PBGC). This is an especially bad deal forworkers, who could face huge losses when their pension funds default.Unlike single employer plans, which the PBGC insures for up to $54,000 per worker per year, the PBGC can only pay out to a miserly $12,870 per year.
For the company, it means millions (in some cases billions) in new liabilities, which must be stated under FASB 157mark-to-market valuation rules, which, as my colleague John Berlau hasnoted, force companies to overstate liabilities by making them priceassets at what are essentially liquidation prices.
Thus,otherwise healthy companies can suddenly find themselves burdened withpension obligations they cannot support. To illustrate how bad thesecould get, McMahon cited the example of United Parcel Service, forwhich the least expensive option was to pay $6.1 billion to get out ofthe Teamsters’ Central States pension fund.
One particularlypernicious reason so many union pension are underfunded is shareholderactivism. McMahon cited the example of the California Public EmployeeRetirement System (CalPERS), which, as a result of eschewinginvestments in politically incorrect industries such as tobacco, hassuffered opportunity losses of 17 to 18 percent.
As DianaFurchtgott-Roth of the Hudson Institute notes in a recent study,“collectively bargained pension plans…perform quite poorly relative toplans sponsored unilaterally by employers for non-union employees.”
McMahonrightly characterized shareholder activism as a dereliction offiduciary duty by pension fund administrators. “Their duties arefiduciary. Their duties are to the people who put their money in theirtrust,” he said. “They don’t act properly” by making investmentdecisions based on political criteria, rather than on which investmentscan provide the best returns.
Shareholder activists oftenseek to promote a broad leftist ideological agenda, often in concertwith other left-liberal constituencies, as the new Blue-Green Alliancemakes clear.
With several major American companiesstruggling to manage with legacy costs, of which pensions form asignificant part, the last thing the nation’s economy needs is for morecompanies to become burdened with such costs. As EFCA supporters promise better pay and benefits for workers if the legislation is passed, workers themselves should consider what EFCA would really deliver.
You can’t get better pay and benefits when jobs disappear.