Despite the stock market achieving record highs, union pensions just can't seem to catch up. Yet, rather than deal with a mess of their own creation, those organizations are now lobbying governments to provide them with taxpayer funds in a bail-out.
Earlier this year, the New York Times reported on the “financial time bomb” that is the multiemployer pension crisis. These are plans where employers and labor unions collaborated to provide retirement benefits to employees. Unfortunately, despite significant federal regulation, these plans still face insolvency within a decade.
Multiemployer pension plans’ unfunded promises totaled an all-time high of $638 billion in 2015 (the most recent year available).
That’s $638 billion the plans promised to pay their workers as part of their compensation but did not set aside to actually pay them. https://t.co/UUZksxnUI4
— Heritage Foundation (@Heritage) July 26, 2018
That will put more than one and a half million people at risk of reduced benefits. This is just the tip of the iceberg in what The Heritage Foundation estimates is a $6 trillion dollar problem for the United States: $50,000 for every American household.
The proposed solution on the table is a “loan” to these organizations to meet their funding obligations. According to the Heritage Foundation, such loans would function as bailouts, with little realistic expectation for repayment. This would “encourage the same reckless behavior that contributed to the $500 billion shortfall faced by roughly 1,300 multi-employer pension plans today.”
The loans are a provision of the Butch Lewis Act of 2017, a bill which presently has minimal bipartisan support in the two chambers of Congress. Part of the reason for the lack of enthusiasm may be because of the provision that says if the loans cannot be repaid, pensions could negotiate for more time for repayment — or have the loans forgiven altogether.
The problem is unique to multiemployer pensions, which have $2.3 billion in assets and liabilities of $67.3 billion. Single employer plans have assets of $106.2 billion and liabilities of $117.1 billion and. According to the Pension Benefit Guarantee Corporation, unlike multiemployer plans, single employer plans “will no longer be in a deficit position by 2022."
— Milliman, Inc. (@millimaneb) August 9, 2018
Union members now want the government to step in and have taxpayers who are funding for their own retirement deliver on the promises that their unions failed to keep.
The only realistic solution is for the union pensions to bring benefits into line with actual costs, rather than promise $600 billion in benefits that the program cannot provide. Otherwise, for some businesses, their very existence is at risk.
Just how bad is the nationwide pension crisis? “Millions of retirees and workers are staring at deep reductions in benefits, while businesses risk going out of business without action.” https://t.co/UPuPCpFNwb
— POWER Now! (@PowrNOW) August 6, 2018
One such multiemployer plan, the Central States Pension Fund, tried that in 2016 but caved in to pushback from retirees. Instead, it now pays out four dollars for every dollar it receives.
Anyone with a checkbook can tell you that is not a recipe for sustainability.