Unions and Democrats are scared. They should be.
Very soon, Democrats and their union bosses’ worst fears may soon be realized and, if they cannot continue their slight of hand, it may threaten their very existence. While it is true that Democrats and their union bosses are facing possibly debilitating losses on November 2nd, they are hiding the really bad news from voters until after November 2nd.
Do you remember that promise we heard back in 2008 about transparency? Democrats and, in particular, then-candidate Barack Obama stated emphatically that “transparency and the rule of law will be the touchstones of this presidency.” What a joke that was. Well, it’s time to shed some light on the house of cards that is about to come crashing down on Democrats’ and union bosses’ heads.
“This is Armageddon.”
In June, a conversation took place in a hotel restaurant in Washington. As a latecomer to the conversation, it was easy to pick up that the topic that was the $165 billion union pension bailout bill introduced by Sen. Bob Casey [D-PA] in March.
Upon introductions, one of the individuals stated, “this is Armageddon.”
When asked for clarification, the person explained about the accounting rules developed to shore up underfunded union pensions and the dates when those union companies affected would have to assume their liabilities had the DC crowd (in particular, the Democrats and the unions) in a panic.
Yesterday, the Washington Examiner’s Mark Hemingway gave a good breakdown of how bad it could get for Democrats and their union bosses:
On Nov. 1, the Financial Accounting Standards Board (FASB) ceases to take public comment on a new rule requiring that companies more accurately report liabilities they have from participation in multiemployer pension plans. Unless FASB is persuaded otherwise, the rule takes effect Dec. 15.
There are some 1,500 multiemployer pension plans in the United States, which are unique to unions. In these plans, multiple companies pay into the pension plan, but each company assumes the total liability.
Under “last man standing” accounting rules, if five companies are in a plan and four go bankrupt, the fifth company is responsible for meeting the pension obligations for the employees of the other four companies.
What this means is that companies with union labor often have pension liabilities that are several multiples higher than the pension expenditures they report — the Kroger grocery store chain shocked analysts last year when it disclosed its multiemployer pension liabilities more than doubled in a year to $1.2 billion.
FASB’s new rule could effectively wipe out the paper worth of many companies, especially in the trucking and construction industries. Once banks and creditors are aware of these staggering pension liabilities, it will make it nearly impossible for union businesses to get loans, credit lines or bonding.
The effects of having to meet reality will almost certainly cause a significant drop in stock prices for those companies affected and, as a result, may cause a large ripple effect throughout the rest of the economy. In those cases where the liabilities exceed the value of the unionized companies, it is entirely possible many of those companies will go out of business, laying off tens of thousands of employees, and further causing a drop in economic activity.
Some companies risk having their ratings downgraded, especially if weaker companies become bankrupt and leave the pension plans.
One example of a company that would likely go out of business is YRC trucking, which employs approximately 35,000 Teamsters. While the freight currently carried by YRC would likely be picked up by other carriers (many of which are non-union), the loss of members (and their dues) would be devastating for the Teamsters and the Democrats.
Right now, before November 2nd, Democrats don’t want voters to know that their union benefactors may further cause the economy to fall further or more companies to close and jobs to be lost. As a result, Democrats are not talking about it on the campaign trail. Instead they’re hoping they can work out a scheme during a lame duck session, sticking taxpayers with another $165 billion union bailout.
Without the bailout though, as we noted in July, unions and Democrats face a bleak future:
On the other hand, even though Democrats know that another union bailout will likely make them even bigger pariahs with the American people, the very survival of their party rests on their ability on passing this poisonous piece of legislation. If they fail, the ramifications for the Democrats are disastrous.
As opposed to taking more from taxpayers and adding more to the debt or creating another Ponzi scheme, the Competitive Enterprise Institute’s F. Vincent Vernuccio offers some alternatives to the union pension bailout:
The entire multiemployer model needs to be rethought. The funding and disclosure standards of the PPA and FASB are a good start but more needs to be done. Unions who use their pensions for recruitment should be required to tell prospective union members if the retirement packages they are touting are in critical or endangered status. Any mention of government insurance should be accompanied by the caveat that multi-employer plans are only insured by up to $12,870.
No worker should be forced into a critical status pension fund. They did not make the promises to current employees and retirees and should not be forced to pay into a broken system.
Union members should be allowed the same mobility and retirement control as the other three quarters of workers receiving pension benefits in America. Defined contribution (DC) plans should be encouraged for new workers. Older members should be given the option to opt-out of failing pension plans and convert the money they receive into a DC plan.
If all contributing employers or a majority of beneficiaries agree, a multi-employer plan should be terminated if the ratio of employees to retirees reaches 1 to 1 – in 2007 before UPS withdrew; the Teamsters Central States Plan covered 451,000 workers with only 155,000 currently employed. A system where one worker is supporting three retirees is doomed to failure. Instead of having decades of future liabilities, employers should be given an option of a onetime buyout of failing union pensions.
America is careening toward bankruptcy. While blame can initially be laid at the feet of both parties, over the last 20 months, Democrats’ meddling in the private-sector, out-of-control spending, and sheer ineptitude in recognizing the job-killing policies they promote have pushed the nation closer to the precipice.
Now, with two weeks before November 2nd, Democrats are hiding the fact that financial Armageddon may be right around the corner. If Americans are the ’shareholders’ and politicians are the executives in charge, the lack of disclosure on the part of Democrats would be criminal.
“I bring reason to your ears, and, in language as plain as ABC, hold up truth to your eyes.” Thomas Paine, December 23, 1776