F or years another potential multibil- lion fiscal catastrophe has been brewing, obscured by higher-profile storms created by taxpayer bailouts of Detroit and Wall Street and the looming crash of underfunded public employee pension plans.
For the first time, taxpayers may become responsible for the nongovernmental pension liabilities of union collective bargaining contracts in construction, trucking and other industries in which workers move from one employer to another. Some estimate these multiemployer pensions are $165 billion short of committed obligations for paying retirees’ defined benefits.
It’s not a new problem, but it has been under the radar for years as it’s worsened. In 2004, the libertarian Cato Institute’s Richard A. Ippolito warned that underfunded private-sector pension funds increased the likelihood of a taxpayer bailout.
Defined-benefit pension plans arguably suffer more than 401(k)-type funds from stock market losses and the prolonged recession because the amounts they must pay retirees can’t be reduced. Moreover, the federal program to back private pensions, the Pension Benefit Guaranty Corp., has its own $21 billion deficit.
A bill in Washington would put taxpayers on the hook for multiemployer plan obligations backed by the PBGC, which so far has been financed only by insurance premiums, investment income and pension plan assets. How much tax support will be required is in dispute. We fear the total also will be open to negotiation and union pressure.
Sen. Bob Casey, D-Pa., contends his Create Jobs and Save Benefits Act of 2010 costs no more than $10 billion. Critics say the bill is the nose under the tent, potentially exposing taxpayers to the full $165 billion shortfall, and whatever additional future debts can’t be paid by underfunded private plans. Casey’s bill would establish a “partitioned” fund within the PBGC devoted to deficit-ridden multiemployer plans.
“The proposal would transfer responsibility to the PBGC for paying of the full plan benefits of participants transferred to the partitioned plan, which in many cases would be well above the amount guaranteed by the PBGC under current law,” testified Phyllis C. Borzi, assistant secretary of labor.
Transferring these private, union-negotiated obligations to taxpayers is unwarranted. As with previous federal bailouts, it’s also ripe with the seeds of dire, unintended consequences. We fear that particularly after November’s balloting, a lame-duck Democratic-controlled Congress and a president prone to federal intervention may unwisely approve such a measure to pay back labor unions, which donate tens of millions to their political campaigns.
We urge Congress to kill this bailout. The sooner the better.