Here is some required reading about Taft-Hartley plans and the problems facing multi-employer pension plans (MEPPs) by Frances Denmark at the Institutional Investor.
Update 8/19: Outstanding WSJ analysis in this editorial (8/15): “The Next Pension Bailout” (pdf)
Readers can keyword search “pensions” to review the numerous posts TheTruthAboutPLAs.com has written about the link between government-mandated project labor agreements (PLAs) and MEPPs.
Key blog posts:
- Construction Unions Push PLAs to Save Underfunded Union Pension Plans
- Construction Union Pension Plans and Project Labor Agreements
- New Report Finds PLA Pension Requirements Steal From Employee Paychecks, Harm Employers and Taxpayers
- Construction Unions Posture for Pension Bailout?
As we have stated many times at TheTruthAboutPLAs.com, one of the reasons nonunion contractors are discouraged from competing for contracts on construction projects subject to PLAs is because of typical provisions in a PLA that require employers to pay employee benefits into Big Labor’s MEPPs for the life of a PLA project.
In rare instances where nonunion employees (and union employees who do not belong to unions that are favored in PLAs) and their employers participate in PLA projects, employers must make benefit contributions to Big Labor’s MEPPs on behalf of employees. These benefit contributions are forfeited to the MEPP unless employees join a union and meet vesting schedules defined in by each plan.
An October 2009 report by Dr. John R. McGowan, “The Discriminatory Impact of Union Fringe Benefit Requirements on Nonunion Workers Under Government-Mandated Project Labor Agreements,” finds that employees of nonunion contractors that are forced to perform under government-mandated PLAs suffer a reduction in their take-home pay that is conservatively estimated at 20 percent.
Besides stealing benefits rightfully earned by construction employees working on a PLA project, a PLA’s pension provision is a windfall for Big Labor’s MEPPs because the MEPPS don’t have to pay future benefits to those employees. It props up these insolvent MEPPs and hides the flawed structure and Ponzi-scheme economics of MEPPs.
The Institutional Investor articles agree that calling MEPPs a Ponzi Scheme isn’t hyperbole and neither does the evidence.
Data from Moody’s Global Corporate Finance September 10, 2009 report, “Growing Multiemployer Pension Funding Shortfall is an Increasing Credit Concern,” measures the crisis faced by construction industry MEPPs.
Using 2007 numbers as a starting point, Moody’s estimates that 2008 underfundings for construction MEPP’s ballooned to $72.484 billion or a 54 percent funded level. In other words for every dollar that these construction MEPPs owe, they hold only 54 cents of invested assets.
Not good. And with unemployment in the construction industry at 27 percent as of April 2010, it is no surprise that contractors (specifically union contractors) that participate in these MEPPs are going out of business. And when MEPP participants go belly up, the burden on employers remaining in the MEPPs becomes greater. Bankrupt contractors that can’t pay their fair share to MEPPs creates additional liability for a MEPP’s remaining employer participants, which can prevent contractors from securing the bonding needed to build projects. This will force more employers out of business, which contributes to the negative feedback loop perpetuated by the flawed structure of MEPPs.
Is there any doubt why nonunion contractors avoid participating in MEPPs? Is there any doubt why nonunion employees would rather remain nonunion and participate in 401(k) and Roth IRA retirement plans than join a union and rely on MEPPs?
With the economic downturn, decline in construction industry union membership and looming demographic problems that point to MEPP insolvency, how much money do you think it will cost the U.S. Pension Benefit Guaranty Corporation (PGBC) or taxpayers to bailout construction industry MEPPs? $125 billion? $150 billion? $200 billion? And will a bailout provide a long term solution or is it just a short term delay of the inevitable failure of MEPPs?
This MEPP crisis calls into question the wisdom of President Obama encouraging federal agencies to require PLAs on federal construction projects costing more than $25 million via Executive Order 13502. (Learn more about the status of the final regulatory rule implementing Executive Order 13502 here.)
The U.S. Department of Labor provides a list of all Taft-Hartley plans in the critical and endangered status here. Check to see if the Taft-Hartley plan you are participating in (or your competitors pay into) are in trouble.
Comments and thoughts are welcome.