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The facts on whether Dems are in fact pushing a $165 billion union pension bailout

Posted By Jon Ward On 4:13 AM 05/27/2010 In Blog - Jon Ward | 41 Comments

A fiery debate erupted this week in Washington over whether Congress is about to slip a massive taxpayer-funded bailout for failing union pension plans, to the tune of $165 billion, into an already bloated emergency spending bill.

What is certain is that no such move is imminent. Legislation sponsored in the Senate by Sen. Bob Casey, Pennsylvania Democrat, and by Rep. Earl Pomeroy, North Dakota Democrat, is not attached to the bill moving through the House and to the Senate for a vote later this week.

But a close examination of the Casey/Pomeroy bill by The Daily Caller suggests that it does in fact create “the framework for a taxpayer funded bailout for failing pension plans,” as a letter from anti-tax and business groups that will be sent to Congressional leaders and the White House Thursday morning characterizes it.

Here are the facts:

The Casey and Pomeroy bills, say the two lawmakers and their staffs, are aimed at fixing a complicated problem. Many employers are withdrawing from pension funds as they face higher costs in paying for funds where mostly union beneficiaries outnumber payees and where the fund’s performance has been lackluster.

So, Democrats and some Republicans argue, businesses should not have to pay into a pension fund to support their own employees plus “orphan employees” of firms who have left the fund (the withdrawing firms do have to pay penalties and fees in order to exit a fund).

Casey staff used the example of YRC Worldwide Inc., a U.S. trucking company. About 40 percent of YRC’s pension costs “are to pay the pensions of people who never worked for the company,” said Casey spokesman Larry Smar.

“These costs threaten the company and its 40,000 employees,” he said.

But to take care of these “orphan employees,” the Casey/Pomeroy bill would create a new fund within the Pension Benefit Guaranty Corporation that would not be funded by premiums from business, which is the PBGC’s normal source of revenue. Instead, all pension benefits paid by this “fifth fund” would be “obligations of the United States,” according to the bill as currently written.

In addition, the PBGC is already in the red, with a deficit of $21 billion as of last fall. That shortfall is expected to increase to $34 billion by 2019, according to a report released earlier this month.

So if the already overwhelmed PBGC took on new obligations and said they were the responsibility of the government, that leaves little option other than using taxpayer funds.

Smar, Casey’s spokesman, said that “any cost to taxpayers” would be “offset” under the Senate pay-as-you-go rules, but those rules have been repeatedly flouted. Smar also said the senator’s bill targets only a handful of pension plans.

And in fact, one Republican on Capitol Hill argued privately Wednesday evening that the PBGC has long been considered to have an implicit government guarantee similar to Fannie Mae and Freddie Mac, the failed mortgage giants that were taken over by the government in September 2008.

In light of this implicit guarantee, the Republican argued, the government should set up a funding stream to pay for the failing pensions now rather than when the PBGC hits a crisis brought on by cascading numbers of “orphans” pensions being added to their books. The Republican acknowledged it was an unsavory proposition for taxpayers who watched their own 401K’s get decimated in the 2008 credit crisis to have their tax dollars used to bail out union pensions.

The Pomeroy bill has nine Republican cosponsors in the House. At one point, Rep. Mike Pence, one of the top-ranking members of the House Republican leadership, was a cosponsor. But he withdrew from the bill just over a month ago. Pence’s office said Thursday morning that his name was added to the bill in error by those who drafted the legislation, and that the congressman never supported it.

Brian Johnson, federal affairs manager at Americans for Tax Reform and a lead organizer of the letter being sent to Congress Thursday, said the Casey/Pomeroy measure “will essentially open the floodgates to allow all of the plans to be bailed out.”

“A provision in both bills would allow the fifth fund to transfer money to other parts of PBGC,” Johnson said. “That means that the fifth fund could be the camel’s nose under the tent, using taxpayer dollars to shore up the deficit-ridden PBGC.”

The $156 billion number comes from a September 2009 report by Moody’s Investors Service that estimated the nation’s 126 largest pension plans (there are about 1,500 plans in all) to be underfunded by that amount. Casey has said his bill would cost $8 to $10 billion.

The Senate Health, Education, Labor and Pensions Committee is scheduled to hold a hearing on the Casey bill Thursday morning. In advance of that, representatives of around 50 pro-business and anti-tax groups sent a letter to congressional leaders opposing the legislation.

There is one element of the Casey/Pomeroy bill that has been added to the emergency spending bill moving through Congress this week. The measure will allow pension plans flexibility in how to account for losses suffered during the economic downturn in late 2008 and early 2009. Critics say this will allow the pensions to hide how badly underfunded they are.

But the fact that one piece of the Pomeroy bill had been added to legislation moving rapidly through Congress this week led to confusion.

Johnson, in a blog post on ATR’s website, called the amortization measure a “union pension handout.”

Fox News has reported all week of an impending $165 billion taxpayer bailout of union members’ pensions. Casey and liberal organizations reacted angrily, denouncing the reports as straight out lies.

“That is totally false,” said Casey spokesman Smar.

Smar also said that “unions are not benefiting from this bill.”

But the Teamsters own website hailed the Casey bill when the senator, who has received substantial campaign donations from organized labor, unveiled his legislation on March 22 at a YRC loading dock in Carlisle, Pa.

“The bill is extremely important to the Teamsters, who have been working with Sen. Casey on it,” the Teamsters website said.

Nonetheless, the lack of clarity over what exactly was included in the emergency legislation seemingly headed for quick passage this week resulted in Republican congressman Steve LaTourette of Ohio stomping on to the House floor Tuesday to reprimand Fox News for having “weenie” and “pinhead” employees.

Meanwhile, one House aide close to the issue said they did not think the Casey/Pomeroy legislation would actually become law this year, saying the amortization measure that has been added to legislation is all that is likely to pass.

Casey’s office did not share that assessment.

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