Bailout Suggests It’s Time to Rethink Multiemployer Pensions
President Biden announced last Thursday that the government would give $36 billion to bail out the multiemployer Teamsters Central States Pension Fund. It is the largest amount of federal aid ever provided for a pension plan, according to the administration, and proof that the phrase “too big to fail” doesn’t just applies to union endeavors as well. The funds came from the $1.9 trillion American Rescue Plan.
The basic problem is that the fund is a multiemployer one. Businesses collectively pay into it and if a business goes bankrupt the remaining ones are obligated to cover for it. A decade ago, the plan had 1,900 companies paying in, according to The Wall Street Journal. Today the number of companies is just 1,000. Some companies went out of business. Others got out when they became justifiably worried about how much they were on the hook for. The United Parcel Service paid $6.1 billion to the fund in 2007 as part of a deal to exit the fund.
Unions prefer multiemployer plans because the workers remain in the pension program even if their company goes out of businesses or they switch jobs. That keeps the workers tied to the union and helps unions retain members.
The Central States Pension Fund is an extreme example of what can go wrong with these funds. Once a fund gets into trouble, remaining in it becomes a liability. That prompts companies to try to get out, which further weakens the fund, leading to a vicious cycle. New businesses avoid getting involved in the first place. That the $6.1 billion cash infusion 15 years ago still could not set things right shows how deep the troubles went.
“Prior to the American Rescue Plan over 200 multiemployer plans were on a track to insolvency,” noted Rep. Brian Higgins (D-NY) (No relation).
Biden and supporters of the move argue that too many people would be harmed if the pension were not bailed out. It was so underfunded that Teamsters members faced as much as a 60 percent cut in their benefits. “This matters for workers,” Biden said. “This matters for their spouses, this matters for their mothers and fathers who they’re taking care of.”
The problems with the Central States Fund have been known for years. As The Wall Street Journal reported in 2013: “With just 60 cents of assets for every $1 in obligations, the Teamsters pension fund is considered in ‘critical’ status by the Pension Benefit Guaranty Corp. … ‘There is a reasonable possibility that this plan could run out of money in about a dozen years,’ Central States Executive Director Thomas Nyhan said in an interview.”
Eleven years later the federal government bailed it out.
Unions supposedly exist to represent their members interests. That should include ensuring a stable retirement and moving away from risky multiemployer plans. Biden’s action rescued the Central States Fund this time, but unions can’t count on always having an ally in the White House.