San Antonio Express-News (Sunday)
QUIET BAILOUT
Smart Money S.A.: Included in the $1.9 trillion relief plan is a lifeline for union pensions.
Except for those sweet $1,400-per-person payments, the average citizen knows nothing about the $1.9 trillion American Rescue Plan.
I am also behind this veil of ignorance when it comes to the massive spending bill Congress passed in mid-March with zero Republican votes.
But I noticed one obscure provision: an $86 billion bailout of union pensions.
Although that’s only 5 percent of the money allocated, it stands out because most other funds were at least loosely related to protecting the financially vulnerable during the COVID-19 pandemic. The union pensions were a problem many years in the making — one largely unrelated to the economic disruptions of the last year.
Some basic facts:
Taft-Hartley pension plans, also known as multiemployer plans, benefit workers who belong to unions. The Teamsters union and unions representing several construction trades, garment workers and grocery store employees have these plans.
With the multidecade decline of both union membership and industrial trades, Taft-Hartley pensions have faced a common structural problem in retirement plans: an aging and shrinking workforce. This makes solving pension math — the money already in or coming into the plan needs to match or exceed the money going out — very difficult.
Also, critics of these pensions point to lax oversight by pension boards, leading to poor investment choices or an unwillingness to make hard decisions about upping contributions or reducing benefits in lean times.
Approximately 10 million workers are covered under these multiemployer plans. About 1 million workers are covered by the 185 plans considered severely underfunded, but you probably know all this already from your years of subscribing to Actuary magazine.
Those running systematically underfunded or insolvent pension plans are typically forced to make extremely unpopular changes, such as reducing benefits and increasing contributions from employees. Or employers can be forced to pay in additional funds to make plans solvent.
All these choices are very unpleasant when pension plans go bad.
With the American Rescue Plan, the U.S. Treasury will set aside $86 billion in a separate pool to make grants to failing pensions as needed. Not a loan, as earlier rescue plans had proposed. Problem solved! No hard choices needed!
The pensions were underfunded and had overpromised for decades. Shortfalls in pensions
spelled concentrated pain for a politically vital group — unions. A Democratic voting bloc this year meant that unions could solve their problem in a moment, the one in which the federal government loosened its purse strings.
Critics of the opportunistic pension bailout point to a classic moral hazard in finance. The pensions did not make the hard choices to become solvent over the course of many years. In the end, like a spendthrift child whose credit card bill is covered by Dad, the private pension problem was solved in the bailout.
What’s to prevent the plan from getting in a similar bind in the future? What’s to prevent other pensions from similarly failing to solve their own privately generated problems?
A slightly more nuanced view would take in the existing quasigovernmental Pension Benefits Guaranty Corp., which would have incurred losses from backstopping failed pensions. Designed a bit like the Federal Deposit Insurance Corp., which backstops bank deposits, the PBGC would not have been allowed to become completely insolvent. Arguably, public money would have shored it up in the event of widespread Taft-Hartley pension insolvencies.
Union workers are blameless for their pensions’ insolvency. It is not reasonable to expect them to insist on paying more or receiving less over the prior decades. That choice would have to come from pension managers and the boards that hire them. Those are the folks to blame for doing the math wrong or the investing wrong.
One basic problem I see is that pensions are hard. All pensions, I would assert, are ticking financial time bombs disguised as complex math problems.
In the best of cases, successful pensions combine actuarial expertise, a not-too-generous approach to funding and benefits, and cooperative investment markets. Over decades, if any one of those three elements goes wrong, the pension won’t work as promised. But it might take years to recognize the deterioration. Hence the time-bomb analogy.
I don’t want to argue that when it comes to bailouts, we have easy and clear rules of determining which group of workers is worthier than the other. I will not work myself into a high dudgeon about the bailouts of these union pensions. Mostly because it’s becoming harder to name specific industries that have not been bailed out recently. The exception is maybe tech overlords, who seem to be thriving without direct federal subsidies. And finance columnists. Finance columnists haven’t been bailed out either, and they really deserve it more than anyone.
Everybody else — airlines, restaurants, churches and other nonprofits, agriculture companies, small businesses and large corporations, cities and states — have received subsidies. That’s just late-stage capitalism in the United States of America in 2021.
While generous bailouts usually come as a result of a particular threat — the 2008 credit crisis, the 2018 agricultural trade disputes with China and the
2020 COVID-19 shutdowns — the Taft-Hartley pension bailout feels closer to political opportunism.
The Taft-Hartley pension problems arose over decades. They have been “solved” with pandemic crisis legislation by acting on former presidential adviser and former Chicago Mayor Rahm Emanuel’s advice to “never let a crisis go to waste.”
The $1,400 stimulus check was the shiny object from the American Rescue Plan that we heard about, but most of the $1.9 trillion was earmarked for other stuff. This is likely to be President Joe Biden’s most significant fiscal legislation, so I hope we figure out more of it over time.