WASHINGTON—President Biden on Wednesday announced final details of a new taxpayer-funded bailout of private union pensions, rewarding decades of mismanagement, doing absolutely nothing to fix the problem, and putting taxpayers on the hook. In announcing the final rules implementing the American Rescue Plan’s Special Financial Assistance Program, Biden showed that he cares more about protecting the people running unions than the workers who belong to them.
Rachel Greszler, Heritage Foundation senior research fellow in economics, budget, and entitlements, released the following statement on Wednesday:
“This is a taxpayer-funded bailout of the worst kind. The Special Financial Assistance Program hands over tens of billions of dollars to the private union pension plan administrators—some of whom are the same people that ran those pensions into the ground—and even uses taxpayer money to keep paying their salaries.
“The fact that private-union pensions have been allowed to promise $757 billion more in benefits than they set aside to pay is reckless and should be illegal. Millions of people worked decades for what they thought would be a secure pension, but was instead a bill of goods that only propped up unions’ power.
“96% of workers and retirees with multiemployer pensions are in plans that are less than 60% funded. It is only a matter of time before virtually all union pension plans fail, and the CBO has noted that even the overwhelming majority of plans that receive bailouts will still become insolvent after 2051 when the taxpayer funds run out.
“Instead of papering over fatal flaws in union pensions, policymakers should fix the rules so that this never happens again, impose accountability on unions and employers managing pension plans, and minimize pension losses for workers and retirees. But the Biden bailout doesn’t include a single change to improve union pension plans’ funding, it fails to hold bad actors accountable, and it imposes zero consequences on plans that receive bailouts.
“Picking winners and losers among near-universally underfunded union pension plans, requiring hard-working taxpayers to pick up the tab, and rewarding what should be criminal behavior on the part of unions and employers is not ‘protecting’ workers—it's robbing them to protect unions that empower liberal politicians.”
BACKGROUND: Multiemployer pensions are plans run by unions and employer representatives, pooling workers together across an industry, such as construction or mining. Although on the numbers are on the decline, 10.8 million workers and retirees belong to about 1,400 multiemployer plans across the U.S.
Historically, these plans have overpromised and underfunded by making assumptions—such as higher-than-realized rates of return on investments and lower-than-experienced life expectancies—that resulted in far too little money being set aside to pay future benefits.
As it became clear plans were growing increasingly underfunded, they consistently failed to correct their assumptions and increase contributions.
Prior to the pandemic, multiemployer plans had accumulated $757 billion in unfunded pension promises, and were on track to collectively pay out only 42 cents on the dollar in promised benefits. Now, they’re on track to pay out even less, with taxpayers being forced to guarantee that 100% of whatever certain union pension plans promise will be delivered—at least through 2051.
The bailout works like this: Plans that are in the worst financial shape can apply to receive lump-sum cash transfers direct from the Treasury (euphemistically called “special financial assistance”) in an amount sufficient to continue paying 100% of promised pension benefits through 2051. Plans that had already become insolvent and were paying reduced benefits can receive enough funds to cover 100% of the next 30 years of benefits plus lump-sum payments to retroactively reverse past benefit cuts. Instead of imposing accountability on irresponsible and sometimes reckless plan managers, the bailout uses taxpayer dollars to pay their compensation for the next 30 years.
Ironically, the president’s announcement today acknowledges the biggest failure in the multiemployer pension system—plans using unrealistically high rate-of-return assumptions to shortchange contributions—and requires taxpayers to pay for that failure. This final rule will implement a lower, more appropriate rate of return assumption that will require taxpayers to pay even more than the previously estimated $97 billion for private-union pension bailouts. And instead of having to invest all of taxpayer dollars in low-risk investments, one of three taxpayer dollars can now be invested in “return-seeking” higher-risk assets.
