Below in our animated presentation of binding arbitration under the Employee Free Choice Act, we have an employer wondering about being forced to pay into a bankrupt union pension fund. It’s a serious issue.
Ivan Osorio of the Competitive Enterprise Institute reports on some of the pension issues following comments made by Brett McMahon, a Virginia contractor, who discussed the 120-day period between the opening of contract negotiations and the imposition of binding arbitration:
Osorio, at The American Spectator:
McMahon describes this 120-day period as “a good time to start liquidating,” since newly unionized companies would then be required to enter into union pension funds, most of which are supposed to back multi-employer defined-benefit plans. “The problem’s they have no money,” he said.
Employers who wish to back out of such plans must pay a withdrawal fee, because, unlike single employer private pension funds, multi-employer funds are insured primarily by the participating employers, not the Pension Benefit Guaranty Corporation (PBGC). This is an especially bad deal for workers, who could face huge losses when their pension funds default. Unlike single employer plans, which the PBGC insures for up to $54,000 per worker per year, the PBGC can only pay out to a miserly $12,870 per year.
For the company, it means millions (in some cases billions) in new liabilities, which must be stated under FASB 157 mark-to-market valuation rules, which, as my colleague John Berlau has noted, force companies to overstate liabilities by making them price assets at what are essentially liquidation prices.
Thus, otherwise healthy companies can suddenly find themselves burdened with pension obligations they cannot support.
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