Should the Government Bail Out Union Pension Funds?

Fox Business has made something of a splash claiming that Senator Casey has introduced a bill to bail out union pensions that will cost $165 billion.  Media Matters lashes back, arguing that the bill will only cost $8-10 billion and isn't a bailout.  Who's right?

As so often with these things, the truth is somewhere in between.

The bill in question will essentially let multi-employer union pension plans, like the Teamster's plan that is currently causing UPS so much trouble, segregate out the workers of defunct companies and get the Pension Benefit Guarantee Corp to pony up for their benefits.  Media Matters says that the bailout won't cost $165 billion, and they're right;  that's the total liabilities of the plan.  Theoretically, it could cost $165 billion if every single employer went bankrupt, but that's not a very likely scenario.

However, Media Matters also says it's not a bailout, which is silly.  When you give someone money because they've gotten their finances into an untenable state, that's a bailout. $8-10 billion is double the current level of underfunding in the PBGC, and that's just the undoubtedly rosy number cited by Senator Casey.  If the funding levels of the MEPs get worse (as is possible, even likely) it will cost more. 

More to the point, the multi-employer plans have not paid any premiums for the benefits Senator Casey now wants to give them.  The PBGC provides insurance (for which it does not charge adequate premiums, but that is another rant.)  It is not a charitable institution.

The whole point of a multi-employer plan is to pool the risk, and ensure that workers do not lose benefits merely because they have transferred around.  It is true that there are now big shortfalls in these plans, and the bankrupt employers are (definitionally) not around to help the going concerns make up their losses.  That makes it difficult to convince firms that they should, say, employ teamsters. 

But while there's a certain amount of unfairness to this, I don't see why it's more fair to get the taxpayers to suck up the bill.  The employers knew what they were getting into.  So did the unions.  The PBGC exists to shelter workers from total destitution in the event that their pension fund does not have resources to meet its obligations, and there is no going concern behind the fund able to make up the shortfall.  It does not exist to make UPS more profitable, or more competitive with UPS FedEx.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

Why Is Google Making Human Skin?

Hidden away on Google’s campus, doctors at a world-class life sciences lab are trying to change the way people think about their health.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Videos

Why Is Google Making Skin?

Hidden away on Google’s campus, doctors are changing the way people think about health.

Video

How to Build a Tornado

A Canadian inventor believes his tornado machine could solve the world's energy crisis.

Video

A New York City Minute, Frozen in Time

This short film takes you on a whirling tour of the Big Apple

Video

What Happened to the Milky Way?

Light pollution has taken away our ability to see the stars. Can we save the night sky?

Video

The Pentagon's $1.5 Trillion Mistake

The F-35 fighter jet was supposed to do everything. Instead, it can barely do anything.

More in Business

Just In