Taxpayers Could be on the Hook to Cover Union Pensions if Bailout Bill Passes

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With New Ally, Union Bailout Bill Could Gain Traction

(CNSNews.com) – The addition of a powerful Senate ally may be what supporters of a new union bailout bill need to get legislation passed that would put the responsibility for funding union pension plans on the shoulders of American taxpayers.

That new ally is Senate Majority Whip ####### Durbin (D-Ill.), the Senate’s number two Democrat and longtime union ally. The bill, the Create Job and Save Benefits Act of 2010, is the plan of Sen. Bob Casey (D-Pa.) and had languished in committee since March 23.

With the addition of Durbin – who lent his support shortly before the Senate went on summer break – the bill could see new life, especially since Senate Democrats failed to pass the Employee Free Choice Act, known as Card Check, a top priority of their union allies.

The bill would allow the federally chartered Pension Benefit Guarantee Corporation (PBGC) to use taxpayer money to bailout so-called “orphan” benefits plans.

Currently, the PBGC acts as an insurance fund for retirement pensions, charging a fee to extend coverage to private pension plans, should those plans fail. In the event that a pension fund cannot pay the benefits it promised, the PBGC can step in and use the fees it collects to pay benefits. The PBGC is not allowed to tap into taxpayers’ money to bail out pension plans.

The problem for many union pension plans is that they are structured as multi-employer plans, which means that employers in certain unionized industries contribute to the plan. While employers are required to fund the plans, they do not control how that money is invested, a responsibility that falls to the unions.

In the wake of the 2008 financial crisis and recession, many of these plans have gone into distress, facing both funding and liquidity issues as the value of the plans’ assets have declined and some of the businesses funding them have closed.

This poses a problem because if a company goes out of business, it can no longer fund the pensions of its former employees, even though those workers can still draw from the pension fund. This places increased financial strain on the remaining companies and puts pressure on the unions to cut benefits.

A 2009 report from Moody’s Investment Services found what other economists had previously warned about: that many union pension funds were already underfunded and would probably not be able to pay out all of the benefits they had promised to current and future retirees. This becomes a major problem for the unions because their plans are defined-benefit plans that promise to pay a certain level of benefit no matter what.

Casey’s bill would set up a special “fifth fund” within the PBGC that would be used specifically to bail out multi-employer pension plans that fail and assume critical status. Once a plan goes into critical status, the Casey bill would empower the PBGC to step in and draw from the fifth fund to pay out benefits.

The PBGC would then guarantee the benefits of union pensioners.

In recognition that many union plans – confronting a combination of increasing liabilities and decreasing funding – are likely to face serious financial difficulties in the future, the Casey bill allows the PBGC to use taxpayer money to fund the union pension bailout.

“[O]bligations of the corporation [PBGC] which are financed by the fund created by this subsection shall be obligations of the United States,” the bill states, meaning that the federal government – “obligations of the United States” -- would ultimately be responsible for paying the pension benefits of union retirees.

http://cnsnews.com/news/article/71234