August 31, 2016

August 31, 2016 | Commentary on Jobs and Labor Policy

Will Uncle Sam be the mine union’s sugar daddy?

Should taxpayers have to pick up the tab when unions break their promises? The United Mine Workers of America union thinks so. Its pension fund has promised workers $5.6 billion more than it can pay. Now that it is running out of money, the union has had its friends in Congress introduce legislation (HR 2403 and S 1714) that would use taxpayer funds to cover the multibillion-dollar shortfall.

And that could be just the start. There are more than 1,300 private union pension plans across the U.S., and virtually all are massively underfunded. According to the Pension Benefit Guaranty Corporation — a self-funded government agency that provides a backstop for failed private pensions — 96 percent of all union plans are less than 60 percent funded.

Bailing out the UMWA would open the door to additional union pension bailouts totaling more than $600 billion — not to mention trillions of dollars in state and local government pensions, as well as private, non-union pensions.

How did union pension plans get in such sorry condition? For starters, most started paying out benefits as soon as the funds were established, before workers accumulated enough contributions to earn benefits. Additionally, union pension plans “enjoy” preferential funding requirements that allow plan managers to downplay required contributions by using unreasonable interest rate assumptions.

Those advocating a UMWA bailout ignore the union’s culpability and instead blame the decline in the coal industry — and union membership. When a UMWA coal company goes out of business, the tab for “orphaned” employees’ pensions falls on the remaining UMWA employers.

Certainly the coal industry’s decline — exacerbated by the administration’s war against coal — has damaged the UMWA’s pension fund. But this is so only because the union paid benefits to non-contributing workers and failed to negotiate adequate contributions. No matter how many coal mines go belly-up, if promised benefits were set aside, those benefits would still be there.

The UMWA is big on promises. Its website proclaims a promise “is never taken lightly and without careful consideration,” a promise “creates a bond between parties that obligates everyone involved to honor,” and living up to a promise “defines trustworthiness and integrity” of the one making the promise.
The union promised its members pensions when they retired, and in return, unionized miners received reduced wages throughout their working careers. Now, the promised money isn’t there.

But rather than acknowledge its failure and work to minimize its workers hardships, the UMWA is trying to pass the buck (or, rather, the bill) to taxpayers, saying “we intend to hold the government accountable.”

Accountable for what? The terms of the temporary Krug-Lewis Agreement that established a pension fund at the sole discretion of the UMWA and the fund’s trustees? That agreement ended in 1947, and the government has had no role in the UMWA’s pension fund since then.
A UMWA pension bailout would turn taxpayers into powerless sugar daddies, forced to finance whatever unions promise their retired members, but that employers can’t afford.

Obviously, if unions don’t have to pay the full cost of their promises, they will negotiate for excessive benefits and fail to collect the funds necessary to provide those benefits. In essence, this forces taxpayers to subsidize the paychecks and retirement checks of union members chosen by the federal government to receive bailouts.

Instead of protecting the promises made by irresponsible union officials, Congress should focus on protecting the promises it has made through its own entity, the PBGC. Without reform, the PBGC’s multiemployer program will be insolvent within a decade, leaving beneficiaries of failed pension plans with mere pennies on the dollar in promised benefits.

Among other changes, Congress should subject union pension plans to the same rules as single-employer plans; provide plan trustees greater authority as well as liability to encourage proper funding; have the PBGC take over failed multiemployer plans as it does failed single-employer plans; and structure the PBGC like a private insurance company or devolve its role to the private sector.

About the Author

Rachel Greszler Senior Policy Analyst, Economics and Entitlements
Center for Data Analysis

Related Issues: Jobs and Labor Policy

First appeared in The Washington Times