While the nation’s attention has focused on government employee unions’ fight to retain their collective bargaining privileges, unions in the private sector are in an even bigger fight for their own survival.
Many major private sector unions’ pension funds are severely underfunded to the the extent that they threaten the unions’ own solvency, as well as their biggest selling point for attracting new members: a stable and secure retirement. At The Weekly Standard, Mark Hemingway explains just how bad things could get.
[T]he problem of bankrupt union pension plans is not going away. It’s more than likely a number of big union pension plans will go bankrupt. All of a sudden, union employees who were expecting generous pension plans will be dumped onto the Pension Benefit Guaranty Corporation, the government-sponsored enterprise that backstops pension plans. The maximum payout is just under $13,000 a year, or “dog-food money,” notes McMahon.
That’s when things are likely to get really ugly. Multi-employer pension plans are by law governed by boards equally divided between employer and union representatives. There’s already no love lost between rank-and-file union members and the class of political consultants and executives that has come to dominate union leadership. Both of the SEIU’s national pension plans issued “critical status letters” to their members in 2009?—?the Pension Protection Act requires such letters to be issued when funds can cover less than 65 percent of their obligations. The SEIU, however, maintains a separate pension plan for its national officers that was funded at 98.3 percent, according to the latest data.
Expect waves of class action lawsuits over pension mismanagement aimed at recouping money from the employers and unions responsible. This could well bankrupt unions. And when union pension plans begin failing, unions will be deprived of perhaps their biggest selling point — job stability with unrivaled retirement benefits.
We can also expect aggressive actions by the Obama administration to throw unions a series of lifelines through the regulatory process. Before the 2010 midterm elections, organized labor turned to its Democratic allies in Congress and the White House for political solutions to its pension problems, to no avail.
For some time now, big labor has been convinced that it needs a bold political solution to its existential woes — either something that radically alters labor laws to allow unfettered forced unionization or a bailout that could run into the hundreds of billions of dollars.
In the hope of achieving the former under Obama, organized labor rallied around the Employee Free Choice Act, popularly known as Card Check. Despite its Orwellian formal title, this bill proposed to end the right of an employer to demand a secret ballot election of employees before the employer must recognize a union. Under Card Check, organizers could form a union by getting workers to sign cards declaring their support for unionization. This would allow unions to identify publicly workers opposed to unionization and use coercive tactics against them.
While unions hoped that Card Check would rapidly reverse the decline in their membership, the scheme was also meant to help fix their pension plans. Once companies were unionized, the power of collective bargaining could force them to join foundering multi-employer plans, shoring these up. Accordingly, the AFL-CIO declared Card Check legislation “the number one priority of America’s union movement.”
With Democrats controlling Congress and a labor champion in the White House, unions seemed confident Card Check would pass. The legislation was introduced in both houses of Congress in March 2009, and Obama, Vice President Biden, and Secretary of Labor Hilda Solis all made public statements in support of it.
Then . . . nothing. Card Check stalled as business interests such as the Chamber of Commerce became increasingly vocal in their opposition.
Big labor pursued other political solutions. Senator Bob Casey of Pennsylvania introduced the Create Jobs and Save Benefits Act of 2010, which was criticized as a bailout of multi-employer pension plans. It was actually worse than that. The bill would have essentially created a new entitlement by requiring taxpayers to backstop union pension plans in perpetuity. Casey’s bill went nowhere?—?and, adding insult to injury, Representative Earl Pomeroy, the North Dakota Democrat who’d sponsored the bill in the House, was defeated last November.
EFCA and bailouts like the Casey bill have no chance of passage in the current Congress, but President Obama hasn’t given up on trying to help his allies in organized labor, whose support he’ll need for his reelection effort.
Obama appointees to both the National Labor Relations Board and the National Mediation Board are already circumventing Congress pushing a pro-union agenda. However, gaining a few thousand new members likely won’t be enough to bail out billions of dollars in pension shortfalls.
So where are the big money bailouts going to come from? That’s where corporate deep pockets come in. Greater government intervention in the economy creates opportunities for government-directed wealth transfers to politically connected constituencies.
When it comes to government redirecting once-private assets into union hands, things already have gotten that bad. As George Mason University Law Professor Todd Zywicki shows in the current issue of National Affairs, the General Motors and Chrysler bailouts “offer a cautionary tale of executive overreach,” in which politics determined the winners.
Of the two proceedings, Chrysler’s was clearly the more egregious. In the years leading up to the economic crisis, Chrysler had been unable to acquire routine financing and so had been forced to turn to so-called secured debt in order to fund its operations. Secured debt takes first priority in payment; it is also typically preserved during bankruptcy under what is referred to as the “absolute priority” rule — since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the Chrysler case, however, creditors who held the company’s secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. Meanwhile, the underfunded pension plans of the United Auto Workers — unsecured creditors, but possessed of better political connections — received more than 40 cents on the dollar.
Public backlash against the bailouts and a federal government divided between the two major parties make this sordid scenario unlikely to repeat in the same way, but the Obama administration’s record to date gives little confidence that it won’t try to intervene on behalf of its union allies in other dubious ways.
For more on union pensions, see here.