Sen. Robert Casey (D., Pa.) and Rep. Earl Pomeroy (D., N.D.) are pushing legislation that would commit taxpayers’ dollars to bailing out the Teamsters’ retirement pension fund. The financial crisis and the Great Recession may have upset your retirement plans, but that’s not reason that politically connected union thugs have to share the pain.
Here’s the deal, as former Department of Labor official Vincent Vernuccio, now an analyst at the Competitive Enterprise Institute, tells Exchequer: Under the Democrats’ plan, the U.S. Pension Benefit Guaranty Corp., which is basically a pension-insurance fund run by the federal government, would be able to receive tax dollars to bail out so-called orphan pensions — pensions for which employers have ceased making contributions, usually for reasons of insolvency. Under normal circumstances, PBGC does not use taxpayer money to bail out pensions; it charges an insurance premium to the funds it covers and uses that money to make good on pension obligations if a particular pension fund goes bankrupt. It’s like an FDIC for pension funds: If a fund is sufficiently mismanaged, PBGC can step in, take it over, and take care of its obligations.
The Casey bill would change all that, creating a “fifth fund” within PBGC that would receive taxpayer support. Currently, federal law carefully specifies that PBGC obligations are not obligations of the U.S. government. Casey-Pomeroy would reverse that, mandating that “obligations of the corporation that are financed by the [fifth fund] shall be obligations of the United States.” In other words: You, sucker, are paying the bill.
This is worrisome for a lot of reasons, as Vernuccio points out: First, it establishes a precedent for taxpayer-funded bailouts of union pensions. As galling as it would be to bail out the Teamsters and their other private-sector union buddies — whose meatheaded management of their pensions has left them with as much as $165 billion in unfunded obligations, according to Moody’s — things would immediately get much, much worse if that precedent were used to justify a bailout of the public-sector unions, whose unfunded pension liabilities run into the trillions. (President Obama’s home state of Illinois is leading the way down the toilet when it comes to state-employee retirements. California’s pension shortfall, Vernuccio notes, is larger than the GDP of Saudi Arabia.) Casey-Pomeroy wouldn’t authorize public-sector bailouts, but it would establish an all too easily expandable template.
Second, Casey-Pomeroy almost certainly would lead to a broader union bailout. PBGC already has more obligations than it can meet, and its operations already are larger and more complex than most Americans imagine. According to its web site, “PBGC pays monthly retirement benefits, up to a guaranteed maximum, to nearly 744,000 retirees in 4000 pension plans that ended. Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, PBGC is responsible for the current and future pensions of about 1,476,000 people.” Unsurprisingly, PBGC already is more than $20 billion in the red — which is to say, the guys who are supposed to cover you when your pension fund cannot cover its obligations cannot cover their obligations — and its own analysis suggests it will be $34 billion short by 2019. Guess who they’ll be going to for that money?
And that is the truly worrisome part: Casey’s bill would allow for the transfer of money from the “fifth fund” to other PBGC funds. In other words, we could end up paying for the whole thing. “It takes a couple of leaps,” Vernuccio says, “but, long term, you can see this being a backdoor bailout of PBGC.” There is no statutory limit on the amount of taxpayer money that could be committed to bailing out union pensions under the Casey bill. Taxpayers already have an unlimited commitment to bailing out Fannie Mae and Freddie Mac — do we really want to offer a bottomless well of public money to the Teamsters, too?
– Kevin D. Williamson is deputy managing editor of National Review.