Fox’s “$165 billion” “union bailout” is neither
Fox News and Fox Business personalities have claimed that a bill dealing with union-administered pension funds is a “$165 billion bailout for unions.” In fact, the bill is not a “bailout for unions,” and its sponsor reportedly said it would cost the federal government $8 billion to $10 billion.
Cavuto, Willis falsely claim bill is a “union bailout” that rewards unions’ “bad behavior”
Cavuto: Bill is a “big union bailout.” On the May 24 edition of Fox News’ Your World, host Neil Cavuto called the federal corporation that insures private pension plans and takes over insured plans that go into default, such as when a company goes bankrupt. PBGC is not funded by general tax revenues; instead, it collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over. For instance, when appliance maker Whirlpool Corp. closed a plant, PBGC took over the pension plan for workers at the plant and negotiated an $11.7 million payment from Whirlpool to help fund the plan.
Multi-employer funds — and the companies that pay into them — are weighed down by companies that went bankrupt. A March 24 Journal of Commerce article on Casey’s unveiling of his bill at a facility of trucking firm YRC Worldwide reported that multi-employer pension funds “have been weakened” by “the failure of many unionized companies that once supported them,” which forces the remaining companies whose workers are part of the fund to pay “the benefits of pensioners who never worked for them”:
In addition to YRC officials, representatives from ABF Freight System, Kroger and the Teamsters union attended the event. The companies belong to dozens of regional Teamster multiemployer pension funds, including the Central States Pension Fund.
Those plans have been weakened not only by the economic downturn, but the failure of many unionized companies that once supported them — including major companies such as Consolidated Freightways. UPS paid $6.1 billion to withdraw from the plans in 2008.
That’s left YRC and ABF paying for the benefits of pensioners who never worked for them, but for businesses that may have closed years ago, making them “orphans.”
YRC suspended contributions to its pension plans last year under an agreement with the Teamsters, but will have to resume payments in January, and the company supports reform that would lower pension costs before those payments kick in next year.
Casey’s bill would tackle the orphan problem by allowing multiemployer plans to partition off those benefits in separate accounts, overseen by the Pension Benefit Guaranty Corp., an independent agency of the federal government. Within five years, the PBGC would take over those accounts.
Bill does not “bail out” unions — it separates out employees of defunct firms and guarantees part of their benefits. Casey’s bill would allow pension funds to “partition” former employees of defunct firms from those of active employers within the fund, helping to preserve solvency for the fund and preventing employers paying into the fund from having to pay for the benefits of workers they never employed. PGBC would then separately guarantee benefits for those former employees of bankrupt companies. From a March 22 Casey press release announcing the unveiling of the bill:
“Pension plans across the country have taken major losses because of the near economic collapse and the decline in the stock market,” said Senator Casey. “Multi-employer plans face unique challenges that are overburdening pension plans and the bottom lines of companies. My legislation would help correct these problems to protect the pensions of workers and unburden companies stuck paying a crippling expense that threatens its existence and the jobs of its employees.”
Multi-employer plans face additional challenges as many firms in these plans have shut down during the recession without funding their pension obligations. Many multi-employer pension plans now run the risk of insolvency.
As more companies leave the pension plan, the costs left to the remaining companies increase to cover the pension benefits of all employees covered by the plan. Companies still contributing to the plans also run the risk of bankruptcy because of the additional burden of being forced to pay for the pensions of the employees of other companies.
Senator Casey’s legislation would make a number of changes to help ensure solvency of multi-employer pension plans and protect current and future retirees.
Specifically, Senator Casey’s Create Jobs and Save Benefits Act would strengthen the funding status of multi-employer plans by making the following changes:
- Mergers and Alliances — The language in the bill would enable multi-employer funds to combine resources for purposes of reducing administrative costs.
- Partition (ERISA Section 4233) — If a plan satisfies certain requirements, the plan will transfer to a separate account all benefit liabilities attributed to orphans (participants of employers who withdrew from the plan without paying withdrawal liability) and assets equal to a maximum of 5-years of projected benefit payments. The PBGC will handle the initial application, drafting of partition agreement and monitor financial assistance to the plans. PBGC does not provide notices, calculate benefits or in any other form administer the plan. The orphans benefit will be fully guaranteed as if the orphan was still receiving benefits from the multi-employer plan.
- Order the Department of Labor and Department of Treasury to prepare a report on whether the qualified partition program has strengthened the financial condition of the original plans and improved the ability of the contributing employers to these plans to remain in business.
Fox repeatedly pushes false claim that bill will cost $165 billion
Willis: “[W]e’re talking possibly $165 billion.” On Your World, Cavuto asserted that the bill “could leave taxpayers for upwards of north of $160 billion, and that could be just the start of it.” Cavuto was joined by Willis, who said that “it could be as much as $165 billion.” On Fox Business’ Cavuto, Willis said that “we’re talking possibly $165 billion. That’s the pension obligations of these multi-employer pension funds for unions.” Cavuto later added that “this would amount to a $165 billion bailout for unions.”
On-screen text: “Approx Price Tag: $165 Billion Dollars.” From the May 24 Your World:
FoxBusiness.com: “[T]he bill could put another $165 billion in liabilities on the shoulders of American taxpayers.” From a May 24 FoxBusiness.com article:
A Democratic senator is introducing legislation for a bailout of troubled union pension funds. If passed, the bill could put another $165 billion in liabilities on the shoulders of American taxpayers.
[…]
Although right now taxpayers could possibly be on the hook for $165 billion, the liability could essentially be unlimited because these pensions have to be paid out until the workers die.
Laffer: $165 billion figure “a huge amount of money just gone.” On Your World, following Cavuto’s interview with Willis, he hosted economist Art Laffer who said, “What you just looked at in the last five minutes was a huge amount of money just gone in five, seven minutes.” Cavuto replied: “That’s right. I think it’s about $20 billion a minute here.”
Hoenig: Bill “a $165 billion minimum — could be potentially even unlimited bailout.” On Cavuto, Jonathan Hoenig of CapitalistPig Asset Management said, “The Create Jobs and Save Benefits Act is a $165 billion minimum — could be potentially even unlimited bailout by taxpayers.”
Bill does not cost $165 billion
Casey: Bill would cost federal government $8 billion to $10 billion. A March 24 Journal of Commerce article reported that “Casey said the bill could cost the federal government between $8 billion and $10 billion.”
Willis, FoxBusiness.com ignored Casey’s estimate. While Willis noted on Your World that Casey “disagreed with our analysis” and said, “Some have outrageously said that this is a ‘bailout that would cost $165 billion. That is totally false” — a quotation also repeated on Cavuto — Willis did not note Casey’s cost estimate on either Your World or Cavuto. The FoxBusiness.com article also failed to report Casey’s cost estimate.
$165 billion figure represents total underfunding of all multi-employer pension funds. The $165 billion figure cited by Cavuto, Willis, and others is an estimate made in a September 2009 report by Moody’s Investor Service of the total underfunding of multi-employer pension funds, not the underfunding of such funds related to former employees of defunct companies. As the Capital Research Center summarized:
Last September Moody’s Investor Services seconded [the Hudson Institute’s Diana] Furchtgott-Roth in warning about the perilous funding condition of multiemployer defined benefit plans. Its report, Growing Multiemployer Pension Funding Shortfall is an Increasing Credit Concern looked at the Labor Department’s Form 5500 for 126 multiemployer plans in 2007. With 2008 information yet unavailable, the data represented the best look at the majority of assets and obligations for all multiemployer plan. Moody’s remarked, “despite the limitations in the data a very stark picture emerges.” The 2007 data showed the plans overall were only 77 percent funded and had a total underfunding of $87 billion. By contrast, comparable single employer defined benefit plans were funded at 101 percent.
But what about the condition of defined benefit pension plans after the financial meltdown at the end of 2008? Moody’s estimated that funding levels for the single employer plans it examined had fallen and now were only at 75 percent. As for multiemployer plans, Moody’s warned that “when data for year end 2008 is finally released, it will probably show substantial deterioration in asset values during 2008.” It estimated that the multiemployer plans surveyed from 2007 would be only 56 percent funded. In other words, they would be underfunded by about $165 billion dollars.
