I’ve been doing a lot of reporting on the impending collapse of Unions’ multiemployer pension plans. Thanks to new accounting transparency rules, union companies are going to have to start disclosing the massive pension liabilities they have, which might even put them out of business. I described the problem in detail a column last month:
On Nov. 1, the Financial Accounting Standards Board (FASB) ceases to take public comment on a new rule requiring that companies more accurately report liabilities they have from participation in multiemployer pension plans. Unless FASB is persuaded otherwise, the rule takes effect Dec. 15.
There are some 1,500 multiemployer pension plans in the United States, which are unique to unions. In these plans, multiple companies pay into the pension plan, but each company assumes the total liability.
Under “last man standing” accounting rules, if five companies are in a plan and four go bankrupt, the fifth company is responsible for meeting the pension obligations for the employees of the other four companies.
What this means is that companies with union labor often have pension liabilities that are several multiples higher than the pension expenditures they report — the Kroger grocery store chain shocked analysts last year when it disclosed its multiemployer pension liabilities more than doubled in a year to $1.2 billion.
Ratings agencies such as Moody’s and Standard and Poor’s have been highlighting the lack of transparency in union pension plans. Now Wall Street wants union businesses to be upfront about their liabilities.
FASB’s new rule could effectively wipe out the paper worth of many companies, especially in the trucking and construction industries. Once banks and creditors are aware of these staggering pension liabilities, it will make it nearly impossible for union businesses to get loans, credit lines or bonding.
While FASB’s December 15 deadline was very imminent, it appears that FASB has given union businesses something of a reprieve, and FASB is now saying “The Board decided that a final standard will not be effective for the 2010 calendar year-end reporting period. It will decide on an effective date at a future meeting, after it has substantially concluded its redeliberations.” FASB is now saying the rule is now likely to be implemented in the second quarter of 2011.
True, this provides unions more time to get that $165 billion bailout bill they’ve been wanting from Congress, but the possibility of that happening seems increasingly unlikely — especially since Rep. Earl Pomeroy, D-N.D., who was sponsoring the legislation in the House lost his seat on November 2. (Still, observers should probably be on the lookout for the massive union bailout to happen in the lame duck.)
But even union opponents were surprised by how quickly FASB initially wanted this rule put in place, and still anticipate FASB’s rule will be implemented next year. And even if FASB didn’t enact the rule requiring disclosure of pension liabilities, the cat’s still outta the bag. Banks and Wall Street are rapidly waking up the fact that these pension liabilities exist and are already demanding they be disclosed before they make loans, extend credit etc. The underlying problem — that union pension plans are massively in debt and in an accounting death spiral — won’t be going away any time soon.