union pension funds

Obama Administration Pushes More Bailouts at Taxpayer Expense; America to Bail Out Corrupt Union Pension Funds

by Hans Bader on June 2, 2010 · 2 comments

in Bailout Watch, Economy, Employment, International, Personal Liberty, Regulation, Stimulus to Nowhere

The Obama administration and its congressional allies are now pushing for billions more in bailouts for mismanaged union pension  funds, and teachers unions.

The union pension bailout bill “would transfer tens of billions of dollars worth of retiree liabilities” from unions “to taxpayers.”  It would bail out the massively underfunded pension fund of the SEIU, a corrupt left-wing union that uses mobs to intimidate, and occasionally beat up, its critics and creditors. (The SEIU serves as a security force for Obama allies and liberal Congressmen seeking to keep Tea Party protesters away from their events.)  The union pension funds are estimated to be underfunded by $165 billion.

The Obama administration is also proposing a multi-billion dollar teacher bailout sought by the teachers’ unions.  Although education spending per student has quadrupled, after inflation, since 1960, and teacher class sizes have shrunk considerably, the Obama administration wants to increase spending even further to prevent states from laying off any teachers.  Even the The Washington Post, which endorsed Obama and has endorsed every Democratic presidential candidate since 1952, considers this unwise and financially reckless “wasteful spending.”  (The SAT has been “recentered” in recent years to hide the fact that SAT scores have effectively gone down even as education spending has skyrocketed.  My 1986 SAT score of 1520 out of 1600 would be a perfect 1600 on the relevant portions of today’s SAT, thanks to “recentering.”)  Ironically, no additional spending would be needed to prevent layoffs if teachers would simply accept small pay cuts.  (The average school teacher in Montgomery County, Maryland, makes $76,483 in base pay–which hasn’t stopped school officials from threatening to sue the County for supposedly inadequate school funding.)

While pushing an unnecessary teacher bailout, the administration has shown little interest in the plight of the unemployed.  It deliberately removed from the $800 billion stimulus package billions in transportation spending that would have stimulated the economy, after feminist leaders complained that such projects would employ blue-collar men, many of whom are now unemployed (80 percent of those who have lost their jobs in the recession are men).   The transportation spending was replaced with wasteful welfare spending, and other provisions of the stimulus package largely repealed the limits on welfare passed in the reforms of 1996.

The Obama administration earlier lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, two mortgage giants known as the Government-Sponsored Enterprises (GSEs). It was just the beginning: “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports The New York Times.

At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.

Fannie and Freddie helped spawn the mortgage crisis by buying up risky mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk. ”From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.” They paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

The Obama administration refuses to reform these mortgage giants, saying it is “too hard” to do. Earlier, Senate Democrats blocked reform of the mortgage giants in a party-line vote.

(Obama received $125,000 in contributions from these mortgage giants as a Senator, second only to the corrupt Senator Chris Dodd, who is retiring this year due to his financial scandals. Dodd is the chief drafter of the financial “reform” bill.)

The financial “reform” bills recently passed by the House and Senate do nothing to reform Fannie Mae and Freddie Mac. But they will increase pressure on banks to make risky loans in depressed neighborhoods, and increase credit card costs.

The Obama administration also recently provided billions for the international bailout of Greece, which came close to bankruptcy thanks to its socialist policies and pensions for people who retire as early as age 50 (in many ordinary occupations, like hairdressers).

SEIU and the Shareholder Resolution Weapon

by Ivan Osorio on January 27, 2010

in Economy, Employment, Labor, Politics as Usual

At Biggovernment.com, blogger Mandy/Liberty Chick has a good, concise account of the rise of shareholder resolutions as a favorite tool of organized labor. By leveraging their pension funds to purchase shares in companies they are trying to organize, unions can bring pressure on those companies, usually as part of a corporate campaign — a coordinated attack on a company’s reputation and ability to do business. She focuses specifically on the use of shareholder resolutions by the Service Employees International Union (SEIU), which has recently emerged as arguably the most powerful union in America.

Utilizing your proxy vote and providing feedback to the board as an active shareholder is a good thing!  But as others have noted, the potential for abuse also exists, if union shareholders engage the board for purposes other than their pension investment interests. Drucker (and lawmakers in the 1970’s) expected that shareholders and their trustees would either engage to positively affect the stock, or they’d sell it if they didn’t like the company’s management.  Perhaps it is this observation that SEIU’s Andy Stern has seized upon. Rather than sell the stock, maybe Stern wants to control the companies in which his pension trust is invested.  It may have less to do with protecting pension investments and more to do with unionizing workers at those companies.

You Don’t Want a Union?  This is My Baseball Bat & I Call It “Shareholder Resolution”

Of all those companies that have been SEIU’s protest targets, most have been the very same corporations in which the $1.9 billion SEIU Master Trust and some of parent Change to Win Investment Group’s $217 billion are invested. Is it also coincidence that many of these corporations were also the very targets of SEIU unionization efforts?

In early 2009, Andy Stern and Anna Burger wrote to the White House and Congress, demanding a list of financial reforms be legislated immediately, including a central regulator, and control over executive compensation and bonuses.  Then in April, SEIU Master Trust director Stephen Abrecht sent a letter to 29 financial firms in which the trust holds investments, demanding that the companies’ directors investigate more than $5 billion in paid bonuses that SEIU says were based upon false metrics. Among those firms on the list were AIG, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Citigroup, PNC Financial Services and others.

Shortly thereafter, SEIU proposed a number of shareholder resolutions to the boards of many of the companies on that same list, requesting everything from ousting CEOs or board members to controlling employee compensation structures.  Meanwhile, outside on the streets, SEIU’s protests were often coordinated with company meetings and events.  As banks and the U.S. Chamber of Commerce fought against the Employee Free Forced Choice Act legislation, SEIU levied shareholder resolutions against them and issued more demands to Congress for immediate consumer protection and financial reform.

When Anna Burger then testified in front of the Congressional Financial Services Committee in September, not only did she push for a central bank regulator and other financial reforms, but she concluded her testimony by calling for the unionization of bank workers, insisting that the bank workers could then “speak out in protection of consumers” without fear to prevent future crisis.

Not surprising, since SEIU has had its eye on unionizing bank workers for quite some time, placing repeated pressure on banks for years and conducting endless rounds of their infamous corporate campaigns.

The bullying aspects of such tactics is bad enough. Even worse is the effect that using pension funds for objectives other than increasing shareholder value can have on the funds themselves — and on the workers who depend on those funds for their retirement. As Diana Fuchtgott-Roth, former chief economist at the Department of Labor, notes in her study of union pension fund performance, published by the Hudson Institute, “an analysis of the financial status of individual pension plans shows that collectively bargained pension plans perform poorly when compared to plans sponsored unilaterally by single employers for non-union employees.”

The rise of private equity has hindered unions’ ability to wield the resolution weapon. In the case of SEIU, it has forced it to become more aggressive in other corporate campaign tactics, including street protests, such as one in October during the American Bankers Association meeting in Chicago, “where some of the protestors dressed in Grim Reaper garb chased down meeting attendees, brandishing cleavers and butcher knives emblazoned with bloody-looking slogans.”

The precarious state of union pensions is a motivating factor behind unions’ aggressive campaigning in favor of the misnamed Employee Free Choice Act (EFCA), which would allow unions to corral in more members into paying into their pension funds. EFCA’s card-check provision, which would effectively eliminate secret ballots in organizing elections, has proven politically unpopular. However, EFCA’s binding arbitration hasn’t received as much attention.

This provision would enjoin a federally appointed arbitrator — who would be unlikely to know much about the company — to impose a contract after 120 days if the newly unionized company’s management and the union representing its employees could not reach an agreement. This would give union negotiators who don’t get what they want in negotiations an incentive to hold out for arbitration, in the knowledge that they would be certain to do no worse than management’s final offer.

EFCA supporters have been trying to sell this provision as a guarantee of reaching a first contract, but in reality it would take the actual negotiating between the parties out of the contract process. Thus, an employer could find itself facing huge new liabilities in the form of pension obligations.

For more on pension fund activism, see here, here, and here.

For more on SEIU, see here, here, and here.

Happy Labor Day!

by Ivan Osorio on September 4, 2009

in Bailout Watch, Economy, Labor, Regulation

In a new poll, Gallup finds public support for organized labor at its lowest level since it began taking the survey.

Gallup finds organized labor taking a significant image hit in the past year. While 66% of Americans continue to believe unions are beneficial to their own members, a slight majority now say unions hurt the nation’s economy. More broadly, fewer than half of Americans — 48%, an all-time low — approve of labor unions, down from 59% a year ago.

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These results are from the 2009 installment of Gallup’s annual Work and Education survey, conducted Aug. 6-9. The 48% of Americans now approving of unions represents the first sub-50% approval since Gallup first asked the question in the 1930s. The previous low was 55%, found in both 1979 and 1981.

Those numbers could go even lower, if much of the public learns more about the ways in which the Obama administration and Democrats in Congress are bending over backwards to please that loyal consituency, as F. Vincent Vernuccio and I argue in The American Spectator today. Particularly, the unions are getting considerable help from the administration and from their allies in Congress in trying to keep their grossly underfunded union pension funds from going bust, as Irwin Stelzer also notes in his Washington Examiner column today.

For more on union pension funds, see here and here.

The Wall Street Journal on the Union Pension Debacle

by Ivan Osorio on July 27, 2009

in Bailout Watch, Economy, Labor

Two weekend Wall Street Journal editorials sum up well the ticking time-bomb of underfunded union pension funds. First, the dire state of many union pension funds:

On average, the asset to liability ration at so-called multi-employer plans, which union funds make up the bulk of, stood at 66% in 2006, according to the Pension Benefit Guaranty Corporation. By contrast, single employer plans, basically most company-provided pensions, were funded at 96%.

And on who will pick up the tab when these plans implode:

[T]his week the federal Pension Benefit Guaranty Corporation took over the pension liabilities of Delphi, the auto-parts spinoff of GM that has been working its way through Chapter 11 since 2005. As with the previous taxpayer rescues, this one includes a special favor for the United Auto Workers.

Under the agreement, the PBGC will assume some $6.2 billion in pension liabilities from Delphi, including both hourly and salaried employees.

[...]

When the PBGC was created in 1974, Democrats running Congress assured everyone there was no taxpayer risk because the agency would be funded by fees from pension plans, as well as by the assets of plans the company takes over. But like Fannie Mae, we are learning that sooner or later these government guarantees always come due. Now the PBGC has a $33.5 billion deficit even before Delphi, and more bankruptcies are headed its way.

For union pensioners, this gets worse. The PBGC guarantees maximum annual payment for someone with 30 years of service is a mere $12,870. By contrast, for single-employer plans, the annual guarantee is $54,000 per year.

The perilous state of union pension funds is a major motivator for organized labor to push as hard possible for enactment of the so-called Employee Free Choice Act, especially its binding arbitration provision, which would empower a federally appointed arbitrator to impose a contract on newly unionized companies. Such contracts could easily include millions in new liabilities in the form of payment obligations into severely underfunded pension funds.

For more on the PBGC, see here.

For more on union pension funds, see here and here.

For more on binding arbitration, see here and here.

NRO on EFCA’s Binding Arbitration Provision

by Ivan Osorio on July 21, 2009

in Economy, Labor

Today’s National Review Online editorial looks at the so-called Employee Free Choice Act’s arbitration provision, which would subject newly unionized companies to having a contract imposed on them by a federally appointed arbitrator.

The worst provision — worse, in fact, than the card-check gambit itself — would allow the National Labor Relations Board to impose contracts on businesses that cannot come to an agreement with a union. If a union enters the picture and the owners of a business are unable to negotiate a satisfactory contract, then the NLRB is empowered to impose “binding arbitration,” meaning that the government will write the contract and force the firm to abide by its terms. This amounts to extortion.

EFCA’s card check provision, which would allow unions to circumvent secret ballots in organizing elections, met considerable public opposition. But organized labor is not giving up on binding arbitration, which would allow unions bosses to corral more companies into paying into some severely underfunded pension funds.

For more on EFCA’s binding arbitration provision, see here and here.

Adding Insult to Auto Dealers’ Injury

by Ivan Osorio on July 10, 2009

in Bailout Watch, Economy

If anything could make finding yourself out of business overnight any worse, it is to have to pay a penalty for it. That’s what now threatens some GM and Chrysler dealers whose factory agreements are not being renewed as part of those companies’ government-led restructuring. Many of those soon-to-be-defunct dealers may find themselves exposed to having to pay withdrawal penalties into the union pension funds into which they will no longer pay.

Now, the Detroit automakers overextended their dealer networks — but that is no justification for penalizing local auto dealers for GM’s and Chrysler’s mistakes. To address this potential problem, Rep. John Kline (R-Minn.) has introduced the Auto Dealers Pension Fairness Act (H.R. 2793), which would direct the Presidential Task Force on the Auto Industry to report to Congress on which dealers are to be closed and bar pension withdrawal penalties until 60 days after the Task Force reports to Congress –  and thus allow Congress to determine a course of action.

This is only fair, but I’m not holding my breath waiting for any unions to endorse it. Many union pension plans are severely underfunded — due in large part to union pension fund managers’ use of funds to pursue political agendas at public company shareholder meetings — and this would only add to their troubles.

For more on union pension funds, see here, here, here, and here.

Barney Frank Asked about Executive Pay Curbs; Throws Tantrum

by Ivan Osorio on June 11, 2009

in Bailout Watch, Deregulate to Stimulate, Economy

Rep. Barney Frank (D-Mass.) appears to be working in tandem with the Obama administration on making executive pay subject to shareholder votes. That seems fair enough; shareholders deserve some say over companies in which they have a stake. However, as CNBC “Squawk on the Street” host Mark Haines noted in an interview wiht Rep. Frank this morning, the nature of such ownership complicates things.

As Haines noted, many public company shares are in the hands of large institutions — he mentioned mutual funds specifically — not “mom and pop” owners saving for their retirement. Those funds invest their assets on behalf of somebody else, namely individual investors, who are removed from corporate shareholder decision making by virtue of going through sucn an intermediary. What was surprising to Haines making this point was Rep. Frank’s reaction. He did not address this specific point, got agitated, and ended the interview.

This begs the question: What role does Barney Frank  envision for institutional investors in corporate decision making? One large category of institutional investor comprises union pension funds, which, as Diana Furchtgott-Roth of the Hudson Institute notes, are seriously underfunded, in part due to union bosses using those funds to advance political causes that do nothing to increase shareholder value. The fact that the unions that control these funds are major donors to Democratic politicians make that question awkward, but especially worth asking.

Video below. The interesting part begins at 4:50. (Thanks to Margaret Griffis for the CNBC video.)

Feinstein Withdraws Support for EFCA (for now)

by Ivan Osorio on June 3, 2009

in Economy, Labor

California Democratic Senator Dianne Feinstein is withdrawing her support for the so-called Employee Free Choice Act (EFCA), organized labor’s top legislative priority, reports a California news station. She joins two Democratic colleagues, Blanche Lincoln (Ark.) and party switcher Arlen Specter (Penn.), in opposing the bill. (Log-in required to view KHTS news story.)

While this is a serious blow to EFCA in its current form, Democratic leaders are working on devising a “compromise” that would likely not include the current bill’s card-check provision, which would effectively do away with secret ballots in union orgaizing elections, while keeping EFCA’s other harmful features.

Chief among these is EFCA’s binding arbitration provision, which would enjoin a federally appointed arbitrator  to impose a contract on newly unionized companies if the company’s management and the union do not reach an agreement after 120 days. Needless to say, the arbitrator is unlikely to have any knowledge of the company’s operations.

Thus, a newly unionized company could find itself burdened with millions in new liabilities in the form of obligations to pay into union a pension fund, as required in the new arbitrator-imposed contract. As Diana Furchtgott-Roth of the Hudson Institute found, many such funds are severely underfunded, especially in comparison to private company funds. It is for this reason that the Teamsters are currently threatening to shut down the Minneapolis Star-Tribune.

Sen. Feinstein’s switch is very good news, but it is not the end of this fight. Card check may have receded, but binding arbitration still looms on the horizon as a threat to economic recovery.

UPDATE: Indeed, the Huffington Post’s Sam Stein quotes a “confidant of the senator” as saying: “She is looking for a compromise. And anyone who says otherwise is engaging in some wishful thinking.”

I’d call this strategic fence-sitting.

For more on EFCA, see here.