The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Possessed by Pensions: Impending Union Bailouts

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


With Halloween around the corner, teenagers and adults alike will dust off classic scary movies, ranging from the comical (Ghostbusters) to the terrifying (The Exorcist).  They may have seen these movies dozens of times, but they continue to be surprised and still jump at the sight of these demonic possessions when young Regan “spider-crawls” down the stairs of her mother’s Georgetown home or ghosts terrorize New York City.  Like these and other scary movies, Congress is on the verge of yet another horror show that has been seen too many times:  a taxpayer-funded bailout.

This time, it is union pensions:  1,238 plans are underfunded.  For example, the United Mine Workers of America’s (UMWA) pension plan faces $5.57 billion in unfunded liabilities and is demanding a bailout.  A September 2016 Heritage report offers three reasons why the UMWA and other union pension plans are suffering:  “paying benefits to workers who did not earn them, neglecting to adjust contributions and accrual rates, and using inappropriate assumptions for investment earnings and lifetime expectancies.” 

When the UMWA fund was established in 1946 by the Krug-Lewis Agreement (see below), it immediately began paying out benefits to workers who had not contributed to the fund.  Since then, it has been impossible for workers to pay off the cost of previous benefits.  The fund cannot catch up due to both fewer coal miners (largely due to the destruction of the coal industry by the Obama Administration) and the failure by the fund’s trustees to adjust contributions and benefits to the shrinking workforce.  In addition, UMWA’s pension fund and other union pension plans are already given preferential treatment over non-union plans by the Employee Retirement Income Security Act (ERISA), which allows union plans to make riskier investment assumptions.  Single-employer or non-union pension plans are required to use a 4 percent interest rate assumption, while multi-employer plans (like UMWA) are allowed to use rates closer to 7 or 8 percent.  

Twenty of the 1,238 struggling union pension plans will go broke before UMWA’s plan, but some members of Congress believe that the UMWA plan deserves even more special treatment than others, including jumping ahead of the line and receiving a government bailout.  

As the United States entered World War II, union leadership made a “no strike” pledge in order to keep up the war effort.  But in 1946, UMWA President John L. Lewis broke the pledge and his workers went on strike; in response, President Truman took control of the mines.  Negotiations between Lewis and Interior Secretary Julius Krug resulted in the Krug-Lewis Agreement, which covered the terms and conditions of employment in the temporarily government-owned mines, and included setting up health and retirement funds.  The government returned the mines to their private operators in June 1947.

Seven decades later, the UMWA maintains that the federal government is liable for bailing out its pension plan due to this (expired) agreement.  Because the government set up the fund and once controlled mines, the union argues that the government is on the hook for the bill.  According to the Congressional Research Service (CRS), the agreement was only applicable from May 1946 to June 1947, when the government had control of the mines.

The UMWA plan and the 1,237 other union plans are covered by the Pension Benefit Guaranty Corporation (PBGC) which was set up in 1974 as an insurance program for all private sector pension plans.  The PBGC does not fully guarantee pension promises; but it provides some relief and support in the form of partial benefits to pension beneficiaries if pension funds run out.  However, the agency can’t cover the struggling pension funds, even partially, since the PBGC fund itself will become insolvent by 2025.

S. 1714 and H.R. 2403, the Miners Protection Act and the Coal Healthcare and Pensions Protection Act, respectively, both aim to ignore the impending insolvency at the PBGC (an already existing possible solution to insolvent plans) and give into the flawed logic offered by the UMWA, while ignoring other pension plans.  S. 1714, which passed the Senate Finance Committee on September 22, 2016 by a vote of 18-8, will use money from the Abandoned Mine Land (AML) Reclamation fund to cover the bailout of the UMWA pension fund.  However, the AML doesn’t have the money to fund the bailout, and CRS has confirmed that the bailout will come directly from the taxpayers.  The bailout will add billions to the $19 trillion national debt and open the door for more pension bailouts, all without reforming the PBGC or ending special treatment for union pension plans.

Instead of fighting back against a ghostly occupation or exorcising a demon, both Republicans and Democrats appear to be giving into a monster more horrific and disastrously destructive than anything Americans can see at the movies.

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