The Wall Street Journal on the Union Pension Debacle
Two weekend Wall Street Journal editorials sum up well the ticking time-bomb of underfunded union pension funds. First, the dire state of many union pension funds:
On average, the asset to liability ration at so-called multi-employer plans, which union funds make up the bulk of, stood at 66% in 2006, according to the Pension Benefit Guaranty Corporation. By contrast, single employer plans, basically most company-provided pensions, were funded at 96%.
And on who will pick up the tab when these plans implode:
[T]his week the federal Pension Benefit Guaranty Corporation took over the pension liabilities of Delphi, the auto-parts spinoff of GM that has been working its way through Chapter 11 since 2005. As with the previous taxpayer rescues, this one includes a special favor for the United Auto Workers.
Under the agreement, the PBGC will assume some $6.2 billion in pension liabilities from Delphi, including both hourly and salaried employees.
When the PBGC was created in 1974, Democrats running Congress assured everyone there was no taxpayer risk because the agency would be funded by fees from pension plans, as well as by the assets of plans the company takes over. But like Fannie Mae, we are learning that sooner or later these government guarantees always come due. Now the PBGC has a $33.5 billion deficit even before Delphi, and more bankruptcies are headed its way.
For union pensioners, this gets worse. The PBGC guarantees maximum annual payment for someone with 30 years of service is a mere $12,870. By contrast, for single-employer plans, the annual guarantee is $54,000 per year.
The perilous state of union pension funds is a major motivator for organized labor to push as hard possible for enactment of the so-called Employee Free Choice Act, especially its binding arbitration provision, which would empower a federally appointed arbitrator to impose a contract on newly unionized companies. Such contracts could easily include millions in new liabilities in the form of payment obligations into severely underfunded pension funds.
For more on the PBGC, see here.
For more on union pension funds, see here and here.