Want to retire? Donâ€™t trust the union label
By F. Vincent Vernuccio and Jeremy Lott
The Washington Examiner - July 25, 2016
One main selling point that unions use for why workers should join them is the good retirement benefits. In an era of 401ks, which can go up and down with the market, they promised guaranteed pensions, and, for the most part, they used to deliver.
There is, however, a catch that now threatens the retirements of hundreds of thousands of workers. Companies may be on the hook for this catch through no real fault of their own. Unions ought to be as well, though they'd prefer taxpayers foot the bill.
Unions delivered on these retirement promises through multi-employer pensions, which are collectively bargained between a union and several private sector firms. One of the largest of these multi-employer plans, the Teamsters' Central States Pension Fund, currently faces insolvency for its retirees, by its own estimation.
This month, a National Law Review article sized up the Central States Fund problems and frankly advised employers participating in the plan to "pay attention to these circumstances and consult with legal counsel with respect to understanding the exposure to liability."
The concept underlying the National Law Review's dire warning is called "joint and several liability."
It works like this: Say a bunch of people are renting a house and move out still owing some money to the landlord. Legally, it doesn't matter which renter was irresponsible and didn't pay rent, because all of those on the lease are "jointly" (together) and "severally" (individually) liable. The owner may go after one or all of them to recover the funds owed.
Multi-employer pensions are funded by several employers. They are controlled by a board appointed by these employers and by the unions as well. Half the seats are employer seats, half union.
The thing that makes multi-employer plans problematic from an employer's point of view is that every employer is responsible for the retirement of every worker in the plan â€” not just those that worked for them. This can make them liable for the costs of other companies' workers.
Fastdecks Ex, a construction firm in Walled Lake, Mich., was stuck with a bill of nearly half a million dollars because it let go of one â€” one! â€” part-time Teamsters driver. That triggered "withdrawal liability" under the fine print of the Teamsters' multiemployer pension plan.
UPS foresaw the coming calamity of Central States and paid the fund $6.1 billion in withdrawal fees in 2007, just to be allowed to leave. Many other, smaller companies simply went belly up, leaving a dwindling number of unionized firms that use the Teamsters for trucking to shoulder the burden.
Solvent firms can only pay so much for retirements. Central States has ended up underfunded to the tune of at least $18 billion. The choices available to the plan were to do nothing and run out of money or to use a provision of the 2014 Multiemployer Pension Reform Act that allows pension funds in "critical and declining status" to bring benefits in line with what the fund can pay out and still pay future retirees.
So the fund put together a plan and submitted it to the U.S. Treasury Department for approval. The Treasury rejected it after intense lobbying from the Teamsters and their allies in Congress.
That's right, the Teamsters lobbied against and killed a proposal by their own fund that they partly control. In response, managers at the fund threw up their hands, saying they wouldn't even try to find a new fix. Result: total insolvency within 10 years, depending on how the stock market performs.
That would usher the retirees currently in the Central States Fund over to the Pensions Benefit Guarantee Corporation, which pays out a maximum of $12,870 annually. Even that much is doubtful. Many experts think the PBGC would not have the funds to take on such a large obligation.
No problem, says Teamsters President James P. Hoffa, Jr. Just pass a government bailout! Congress should pass the Keep Our Pension Promises Act, which "creates a $30 billion legacy fund" allegedly paid for by "closing two tax loopholes used almost exclusively by the super rich to avoid paying taxes," he argued in the Detroit News.
We wonder if Hoffa would be so nonchalant about this if the Teamsters were also made jointly and severally liable for the fund. Teamsters helped manage it to the brink of insolvency and are not without means. In 2014, the union claimed just under $256 million in assets and $183 million in income, without adding in the locals.
Perhaps the union would do a better job of looking after its workers' retirements if it had some skin in the game.
F. Vincent Vernuccio is Director of Labor Policy at the Mackinac Center for Public Policy. Jeremy Lott is an adjunct fellow at the Center.