This Labor Day, some labor union officials should be concerned. The Financial Accounting Standards Board, a private organization that sets the rules for financial auditing, is considering a proposal that would require companies to disclose their potential liability from collectively bargained multiemployer pension plans.
With the liability on view for all to see, it would be difficult for unions to assert to potential new members that failing pension plans are solvent. Unions would lose a valuable tool to recruit new members.
What are multiemployer plans, and why does FASB want their liabilities reflected on companies’ books?
Multiemployer pension plans are created and sponsored by unions to generate retirement income for employees of different companies. These plans allow workers to take their pensions with them if they move to another participating company.
Multiemployer pension plans have lower levels of funding than do plans sponsored for nonunion labor. This disparity is evident in Labor Department data for 2007. The plans are likely in worse shape today.
Congress considers funds with less than 80 percent of needed assets to be in endangered status, and those with less than 65 percent to be in critical status. The Labor Department lists critical and endangered plans at www.dol.gov/ebsa/criticalstatusnotices.html.
In a study published Wednesday, my associates and I examined the funding status of all 2007 pension plans. Among all large plans, only 18 percent of union-negotiated plans were fully funded in 2007, compared to 39 percent of non-union plans.
Twenty-four percent of union plans were in endangered status, compared to 9 percent of non-union plans.
Meanwhile, a few members of Congress have introduced bills that would have the government — that is, the taxpayers — rescue some plans.
If the federal government were to bail out the pension funds, taxpayers would take a substantial hit.
Reps. Earl Pomeroy, D-N.D., and Patrick Tiberi, R-Ohio, would rescue multiemployer pension plans with their proposed Preserve Benefits and Jobs Act. It would set up a “fifth fund” that would give the Pension Benefit Guaranty Corporation unlimited funds to bail out the plans.
With deficits stifling the economy, it’s unfair to make taxpayers, already in trouble themselves, pay for underfunded union pensions.
FASB is to be congratulated for shining a light on underfunded union pensions. But spending billions of taxpayer dollars on their rescue would swell the deficit still further, harming the economy and destroying jobs rather than creating them.
Examiner columnist Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.