union pensions

Yesterday’s election results will make it much more difficult for organized labor to advance its agenda in Congress. This is good news for the American economy, especially struggling businesses and workers who do not wish to join unions.

The deceptively named Employee Free Choice Act (EFCA) remains at the top of the union agenda. It failed to become law when Democrats controlled both houses of Congress and the White House, so its chances of gaining any traction in its current form now are nil. However, during upcoming Congress lame duck session, EFCA supporters could alter the bill in various ways in order get at least parts of it through.

One possibility is jettisoning the bill’s card check provision, which would in effect eliminate secret ballots in union organizing elections. This provision generated the most opposition and is now politically toxic. EFCA supporters could either replace that provision with one mandating expedited elections or push EFCA without an organizing provision. Either option is bad.

Expedited elections very likely would function as ambush elections, in which employers get very little time to respond to union organizing campaigns, and thus give the union a significant advantage.

Meanwhile, EFCA’s other provisions are also very bad policy. The Act’s binding arbitration provision would enjoin a federally appointed arbitrator, who would have no knowledge of the business, to impose a contract on a newly unionized company if the management and the union cannot reach an agreement after 120 days. Such an imposed contract could include obligations to pay into severely underfunded union pension funds. Thus, employers could find themselves facing millions of new liabilities practically overnight, without having much of a say in the matter. (As Brett McMahon of Miller & Long Construction describes it, for a newly unionized company, that would be “a good time to start liquidating.”)

EFCA’s last provision would increase penalties on employers for “unfair labor practices,” which can include actions resisting unionization that would be legal in any other context outside of the bizarre world of U.S. labor law — such as raising wages or promising to do so. Increased penalties for such actions give unions a bigger club with which to browbeat employers during organizing campaigns.

EFCA opponents in Congress — mostly Republicans but also a few Democrats — should be on guard against EFCA supporters attempting to attach the bill’s binding arbitration and increased employer penalty provisions to other legislation. In short, they should be vigilant against EFCA-minus-card-check and EFCA-in-pieces.

Another Big Labor priority to watch out for is the companion union pension fund bailout bills, introduced in the House (Create Jobs and Save Benefits Act, H.R. 3936) by Rep. Earl Pomeroy (D-N.D.) and in the Senate (Create Jobs and Save Benefits Act, S. 3157) by Rep. Robert Casey (D-Penn.). The Pomeroy-Casey bailout would create a new fund within the Pension Benefit Guaranty Corporation (PBGC), an agency chartered by Congress that insures private sector pensions. As my colleague Vinnie Vernuccio and I explain in a recent op ed:

PBGC is funded through premiums paid by private companies to insure retirees if a plan sponsor were to become insolvent. Casey’s bill would direct taxpayer dollars to shore up some underfunded union pension plans. The use of public funds to insure private pension plans is a first for PBGC and stark departure from the way it has operated since its creation in 1974.

Casey’s bill would create a new fund to the PBGC called the “fifth” fund. The legislation states that the new fund’s obligations would be “obligations of the United States.” In other words, taxpayers, not just by PBGC premium payers, would be on the hook. Money in the “fifth” fund would go to “orphans”—employees whose employers have stopped contributing to their plan—of certain existing pensions.

The taxpayer liability could be huge, extending to cover the PBGC’s existing, already-large deficit.

Worse, Casey’s bill would also bail out a dysfunctional agency. The PBGC’s premiums are set by Congress, not the market. As a result, years of too-low premiums, combined with the moral hazard that creates for companies under Chapter 11 to shunt off their pension obligations to the agency, have left the PBGC with severe deficits of its own. The PBGC faces a deficit of $22 billion, which is projected to go as high as $34 billion by 2019, according to its own 2010 annual management report. Taxpayers could also be on the hook for this deficit. A provision in the “fifth fund” allows it to transfer money to others funds in the PBGC, which could use that money to reduce its deficit.

And that’s not all. The Pomeroy-Casey legislation would increase the pension liabilities of companies that already face those obligations, before those pensions wind up as wardens of the state in the new taxpayer-funded PBGC. As Vinnie and former CEI Brookes Fellow Jeremy Lott explain, it would allow multi-employer — i.e. union — pension funds to create “alliances” — that is, combine into larger funds.

Multiemployer union pension alliances might sound innocent enough, but consider what that actually means. Moody’s Investors Service recently warned of a vast underfunding problem with multiemployer pensions. Many employers fear being shackled into them. Even though the funds are controlled by unions, employers are liable not just for their own employees, but for every worker in the plan regardless of how the plan is managed or mismanaged.

The so-called last-man-standing rule holds that if every other company in a multiemployer pension plan goes bankrupt, closes or pulls out of the plan, the one survivor is responsible for every single employee covered by the plan, even those who never worked for him. UPS paid $6.1 billion in withdrawal fees just to escape the Teamsters Central States pension fund.

Earl Pomeroy lost his reelection bid yesterday, and soon will no longer be in Congress, which makes the prospects for his legislation dim indeed. However, just because unions lost one champion of this legislation doesn’t mean they can’t find another. Pomeroy was an odd sponsor of such legislation anyway; unions aren’t exactly political powerhouses in North Dakota. Still, given enough support from the national Big Labor establishment, another unlikely lawmaker could take this up. In addition, Pomeroy himself could try to push this legislation during the lame duck session, which could gain him favor with the Obama administration — and its major labor supporters — and improve his chances for an executive appointment.

Finally, organized labor’s reduced clout in Congress may clear the way politically for the long overdue ratification of free trade agreements with Colombia, Panama, and South Korea. Colombia and Panama are promising emerging markets. South Korea is one of the world’s leading economies. All three countries are U.S. allies. America’s trade agreements with all three deserve prompts ratification.

For more on labor, see here and here.