Federal bailout gives $635 million to carpenters union pension plan

The federal government is spending $635 million in taxpayer funds to bail out a multiemployer pension fund for a Detroit carpenters union. Pension experts warn that the bailout comes with little or no accountability and no indication that it won’t happen again.

Julie Su, acting secretary of labor, announced the bailout in a video posted to her X account Oct. 18. Su credited the 2021 American Rescue Plan Act, which appropriated $86 billion for union pensions.

The Detroit Carpenters Fund bailout will benefit 22,576 carpenters, Su wrote.

“Millions of people work for years, looking forward to the day when the promise of a secure, dignified retirement is kept,” Su said in an October statement. “Today, the Biden-Harris administration is delivering on that promise for 22,576 carpenters by providing Special Financial Assistance to the Detroit Carpenters Fund, which ensures they can retire with the dignity they deserve and that the drastic reductions in benefits they were facing will be avoided.”

The bailout is a bad policy, said Rachel Greszler, a senior research fellow at The Heritage Foundation.

“Bailouts are inherently bad policy because they reward poor choices and even reckless actions,” Greszler said in an email to Michigan Capitol Confidential.

A multiemployer pension system is funded by more than one private employer. It usually benefits trade union employees. Currently, 94% of multiemployer pension participants are in plans that are less than 60% funded, according to Greszler.

This unconditional bailout of a select number of private union pension plans is especially bad, Greszler added, because it doesn’t require plan administrators to fix the problems that led to underfunding.

The federal government has increased spending on pension bailouts since the 2021 act and will give a total of $97 billion to 250 plans that cover more than 3 million participants, according to the Pension Benefit Guarantee Corporation, a federal agency.

A plan can be underfunded for many reasons, including increased life expectancy and lower investment returns.

One of the major problems with multiemployer pensions is that, unlike single-employer pensions, there are no laws or rules against underfunding and making false promises, Greszler said.

The underfunding was exacerbated when several participating companies went out of business, Greszler told CapCon. But “the failure of those companies would not have mattered if the plans had been fully funded because the money to pay the benefits of workers in the failed companies would have already been secured in the pension funds.”

The pension debt was caused by poor and risky investment decisions, not by shrinking hours or a growing retired population, Zachary Christensen, senior pension policy analyst at the Reason Foundation and managing director of the Pension Integrity Project, said in an email to CapCon.

Union leadership failed to secure its pensions, said James M. Hohman, director of fiscal policy for the Mackinac Center for Public Policy.

“Union leaders had a moral obligation to their members to ensure that their pensions were safe,” Hohman wrote in an email. “They’ve failed that duty. And they have asked taxpayers to make up for their failure.”

Greszler called for reforms. Multiemployer pensions should follow the same funding rules for union and non-union pensions, she said, This will minimize inevitable pension losses over the coming decades.

The Reason Foundation’s Christensen warned that the bailout gives the wrong signal to fund managers.

”The bailout signals to pension systems in the private sector that they can continue to engage in risky investment strategies, knowing taxpayers will ultimately be forced to bear the brunt of any downside risk,” Christensen wrote. “Federal taxpayers should not bail out private pension funds.”

CapCon requested a comment from Su, who deferred to the Pension Benefit Guarantee Corporation. The pension agency sent CapCon a news release when asked for a comment.