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A Good Time to Start Liquidating

By on 4.15.09 @ 6:07AM

Card check or no, the Employee Free Choice Act would be a bigger financial disaster than its opponents ever imagined.

The announcements by Senators Arlen Specter (R-Penn.) and Blanche Lincoln (D-Ark.) that they intend to vote against cloture on the so-called Employee Free Choice Act (EFCA) has taken the legislation out of the headlines for now, as EFCA supporters seem short of the 60 votes needed in the Senate to end debate.

But EFCA opponents should not become complacent. Organized labor and its allies in Congress continue pushing this bill, and they are not about to go quietly. And this legislation may be even more damaging than even its opponents think.

EFCA would make secret ballots in organizing elections a dead letter by mandating the National Labor Relations Board (NLRB) to certify a union as exclusive bargaining representative for employees at a company as soon as a bare majority of employees sign union cards. This process, known as “card check,” exists under current law, but requires that employers forgo a secret ballot election.

Under EFCA, employers would have no say, and the union would be certified as soon as it collected signatures from 50 percent-plus-one of employees. Union organizers ask workers to sign cards out in the open, often under pressure. Many employees will sign cards just to be left alone.

EFCA’s card check provision helped provoke a backlash against the legislation as people found out more about it. However, EFCA’s second provision, which has not received as much attention, but could be even more devastating economically.

Just how damaging? Enough to force some healthy companies into bankruptcy, according to one businessman whose company could be severely affected. Specifically, EFCA’s binding arbitration provision could lead to newly unionized companies being forced to assume unsupportable new pension liabilities. Thus explained Brett McMahon of the construction firm Miller & Long, speaking at the Heritage Foundation this week.

EFCA supporters have tried to sell the legislation’s binding arbitration provision as a guarantee of first contract. In fact, it’s a recipe for a government-imposed contract. Under this provision, the company and the newly certified union have 90 days to negotiate a contract.

If they have not reached a contract after that time, they must negotiate for another 30 days, at the end of which period a federally appointed arbitrator may step in and impose a contract. This creates perverse incentives for union negotiators to stall, and thus get a lot of what they want through arbitration.

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. To illustrate how bad these could get, McMahon cited the example of United Parcel Service, for which the least expensive option was to pay $6.1 billion to get out of the Teamsters’ Central States pension fund.

One particularly pernicious reason so many union pension are underfunded is shareholder activism. McMahon cited the example of the California Public Employee Retirement System (CalPERS), which, as a result of eschewing investments in politically incorrect industries such as tobacco, has suffered opportunity losses of 17 to 18 percent.

As Diana Furchtgott-Roth of the Hudson Institute notes in a recent study, “collectively bargained pension plans…perform quite poorly relative to plans sponsored unilaterally by employers for non-union employees.”

McMahon rightly characterized shareholder activism as a dereliction of fiduciary duty by pension fund administrators. “Their duties are fiduciary. Their duties are to the people who put their money in their trust,” he said. “They don’t act properly” by making investment decisions based on political criteria, rather than on which investments can provide the best returns.

Page: 1 2  

About the Author

Ivan Osorio is editorial director and a labor policy analyst at the Competitive Enterprise Institute.

Letter to the Editor View all comments (37) |

Aaron| 4.15.09 @ 7:01AM

I have become even more concerned about EFCA recently. Many people think that its in retreat, but there is way too much money behind it. This animal is far from dead or even limping for that matter.

Just how much cash does it take to bring a smile to the face of a teeter-tottering politician? We may not know how much, but we will certainly know who teetered and who tottered.

Becky| 4.15.09 @ 8:22AM

This administration and congress has sure made me realize how vulnerable a free society is to being hijacked.

The fragmentation of ideas make it harder to piece together the puzzle in a easy to see story for the citizen who has taken for granted our way of life, or adapted slowly to more government intervention.

Last year, I was heading into my local secretary of state office with some business, and was approached by a nice looking young man who was soliciting people to sign a petition to limit government. I was in a hurry, others were signing up also. I check into the Mackinac Center's website regularly, and was horrified to discover I signed a petition crafted by union folks intending to re-do the constitution, specifically eliminating judgeships that were in Republican control. An intern at the MC discovered the plan, and it did not go through.

I guess even liberals can use the "limited government" idea, if limited government means only a limited few are allowed to govern.

Skippy| 4.15.09 @ 8:38AM

By Steven A. Holmes
The New York Times
September 30, 1999

In a move that could help increase home-ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

"Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements," said Franklin D. Raines,

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Clean your mess off the keyboard, booger eater.

Jay| 4.15.09 @ 10:57AM

Let's see...... Nationalize the banking industry; nationalize the financial industry; nationalize the auto industry; eliminate elections for a broad segment of society; supress religion; sue to supress free speech ( Hilary: the movie which portrays her in a true light is being supressed by the attorney general who doesn't want it released); open relations with Cuba; kowtow to Muslim kings; go to Europe with high hopes because America is "nice" again - come home with zip, nada, zilch; make nice with North Korea and Iran and get kicked in the proverbial scrotum.

That's the scorecard. President Obama has pretty much destroyed most of our Constitutional freedoms or is well on the way to doing so. And will now be able import experts on supression of a people from his friend Fidel. I remember a man I knew who fled Nicaragua after the communist takeover ( successfully battled by Ronald Reagan) whom I asked: "why flee now? You had Somoza, a dictator and now you have the communists. What is the difference? "

Raoul told me: "Somoza controlled what you did and said in public. The communists control that and what you are allowed to think in your most private soul."

Foriegn affairs? Failed miserably at every turn and opened the US to insult and ridicule by his submissive approach to our enemies. Beward the Chamberlain syndrome: Peace in our time is not necessarily a good thing. It gives dictators time to develop their weapons.

The USA as it was founded is now dead. Killed by radical leftists who seek total power over each of us. Since it is no longer a Judeo-Christian nation it is unlikely that it will be resurrected.

Pingback| 4.15.09 @ 11:45AM

ABC Member Educates Bloggers | thetruthaboutefca.com | The Truth About The Employee F links to this page. Here’s an excerpt:

…being forced to assume unsupportable new pension liabilities. Thus explained Brett McMahon of the construction firm Miller & Long, speaking at the Heritage Foundation this week. Click over to read the rest. This entry was posted on Wednesday, April 15th, 2009 at 10:45 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a…

David Ulrich | 4.15.09 @ 3:21PM

Aaron asks how much money is involved.

Over the last few election cycles unions have contributed ~$650M in campaign contributions, with 92% going to the Democrats.

EFCA is the unions' payback demand for their political investment.

Every 1% increase in union representation yields $500,000,000 in new dues contributions.

EFCA is the attempted replay of the original Wagner implementation during the last depression. The union - Democratic alliance created 60 years of Federal Government control for the Democratic Party. Republicans would only regain control of both the House and Senate for one term. (1947-1948)

If you are interested in learning more about the history of that relationship you may be interested in a whitepaper I've written. EFCA: Historical Perspective - Current Implications!
http://www.annulrich.com/theboldfactorhr/pdf/efca-researchpaper.pdf

Pingback| 4.16.09 @ 9:18AM

North Carolina’s Union Movement » Press Clips April 16, 2009 links to this page. Here’s an excerpt:

…stimulus packagefeatured topics at local town hall meeting Employee Free Choice Rally Bay Area Retailers Dispute Proposed Labor Bill Labor Events Promote EFCA The State of Our Unions A Good Time to Start Liquidating Pipe Made in India Incenses Illinois Town Fiat deal may turn on unions State of the unions: Can unions rebuild amid new economic realities? The anti-EFCA top 10 State of the unions:…

Paul Crowley| 4.16.09 @ 9:18AM

=>"A Good Time to Start Liquidating" [Ivan Osorio]

For some, maybe.

Comeon.

Most everything has been taken away, or in the last stages of being taken away, and this should help clear away the last. . .

When one takes everything away, then one can choose what to give back later (a few crumbs are surely affordable?). . .

From the perspective of the federal government departments of Defense & State), the large multi-national corporations, and ‘public oversight’ (large NGOs), what’s not to like?

If it’s ‘made’ to go through (and the members of the “popular classes” must do this for themselves, of course), then it:

Effectively kills the hated Secret Ballot, once and for all (once hated by authority; now being taught to be hated by the peonage);
Sheds the last vestiges of pension obligations;
Wipes the old (pre-1998) understanding of Benefits from the public consciousness of the less-than-little people;
Institutionalizes the newly-defined Defined Benefits;
Further develops the American “Human Resources:” By facilitating the formation of the new ‘E. Pluribus Unim’ (and is this not needed?), toughening up the whiners (putting some steel back into the backbones of the less-than-little people, by making them think that they took the crumbs tossed back to them themselves), provides the workforce necessary for the newly modernized industries and operators & grunts for the modernized military.

If a few of the last vestiges of little people, small company owners, go under, then 'all the better;' it's just 'icing on the cake,' no?

EFCA is a start, especially if it’s not Just Given Away.

Holding it up by Filibuster will help, thereby, forcing the less-than-little people of the Popular Classes to get up and Fight, Fight, Fight (Singh, Hernandez, Olumba, Nguen, O'Leary, McPherson & Smith, males & females, all united in "Solidarity Forever, 'Cause the Union Makes Us Strong").

It’s now possible!

Thanks to the vote of Fightin’ Arlen, cast before tossin’ his hat into the ring”’ so he can get to fightin’ to sustain the pretense of fightin’ for a chance at his 6th term, divide the repubs and 'grease the skids' for the democrat. His rhetoric of fightin’ the Big Guys on behalf of the little guys, oughtta help rouse the rabble (who, when not merely whining, are only sullenly clingin’ to their ‘guns & bibles,’ or demanding days off for observance of their Buddhist, Hindu, animist, or voodoo, religions; “My god! Diversity run Amok!). . . Specter’s role is obviously ‘complex’ (as in “nuanced,” as in logically-contradictory, and, so VERY confusing), but since it’s not as if he’s actually trying to win a 6th term, the "nuanced" part should help it all work out (and, “ ‘all’s well that ends well,’ Ya Know?”).

A good labor movement is just what is needed if the country is moving toward another general war.

The Wagner Act of 1935, among a good bit else, did wonders to prepare the American “Human Resources” for the last one.

Paul Crowley| 4.16.09 @ 9:23AM

=>“you may be interested in a whitepaper I've written. EFCA: Historical Perspective - Current Implications!” [David Ulrich]

Uh oh. Sounds skeery; better not read it before bedtime, I guess?

Paul Crowley| 4.16.09 @ 9:50AM

Ooops.

Very important

A good labor movement is the perfect means to provide the medium, now lacking, to instruct and form the less-than-little people of the Popular Classes in the new re-formed ethics (‘where else would they want to go?’).

Party Time is over.

Time to clean ‘em up and install some semblance of dignity into them. Teach ‘em how to behave, shut down the ‘sounds-like-happy-hour-by-7 p.m. stuff at the nurses’ stations in the reformed hospitals especially 1991-present), and teach all of these people that neither donuts, nor other such graft, should be necessary To Do Their Job (where did they Ever get such ideas in the first place?).

In short: A good labor movement is just what is needed to institutionalize all of the changes and gains implemented during the Bush-Clinton-Bush-Obama administrations, and re-form the dirtied members of the Popular Classes.

Pingback| 4.17.09 @ 8:08AM

Shopfloor » Blog Archive » Card Check: About those Union Pension Funds links to this page. Here’s an excerpt:

…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…

Pingback| 5.29.09 @ 2:02PM

The AFL-CIO’s “Creative Accounting” | OpenMarket.org links to this page. Here’s an excerpt:

…find itself on the hook for millions in pension obligations which it did not itself assume. For the union, this allows it to keep its pension fund going for some time longer. For the company, it could spell disaster. As far as the government is concerned, it should maintain union financial reporting requirement at least at their current level. Rolling them back would allow greater obfuscation of the kind…

Pingback| 6.15.09 @ 5:06PM

Motoring around the World on Motor City Workers’ Dime | OpenMarket.org links to this page. Here’s an excerpt:

…to join the pension fund of the union that now represents them, and for the employer to pay into it. (Thanks to Marc Scribner for the Free Press link.) For more on pension funds, see here, here, and here. « Langer: Consumer Safety at Risk This Post has No Responses, Be the First to Comment Leave a Reply Click here to cancel reply. Name (required) Mail (will not be published) (required) Website…

Pingback| 7.10.09 @ 3:25PM

Adding Insult to Auto Dealers’ Injury | OpenMarket.org links to this page. Here’s an excerpt:

…use of funds to pursue political agendas at public company shareholder meetings — and this would only add to their troubles. For more on union pension funds, see here, here, here, and here. For « Church Leaders, Senators Oppose Forcing Honduras to Reinstate Ousted President and Would-Be Dictator This Post has No Responses, Be the First to Comment Leave a Reply Click here to cancel…

Pingback| 7.13.09 @ 5:56PM

Reason’s Shikha Dalmia on EFCA’s Binding Arbitration Provision | OpenMarket.org links to this page. Here’s an excerpt:

…underfunded multi-employer union pension funds. For newly unionized companies brought into these plans, this would represent tens of millions in new liabilities. For many of those companies, it could spell doom. And for what? To subsidize organized labor’s use of pension funds for political activism. For more on EFCA’s binding arbitration provision, see here. For more on EFCA in general, see…

Pingback| 7.17.09 @ 3:29PM

Union Pension Fund Bailout Taking on a New Form | OpenMarket.org links to this page. Here’s an excerpt:

…it is almost certain to include binding arbitration as it stands in the current bill. Binding arbitration could impose not only onerous work rules, but millions in new liabilities on companies, including payments into severely underfunded union pension funds. For the unions that have mishandled those funds, this would constitute an indirect bailout, as more employers are corralled into paying into those…

Pingback| 7.21.09 @ 10:46AM

NRO on EFCA’s Binding Arbitration Provision | OpenMarket.org links to this page. Here’s an excerpt:

…ballots in organizing elections, met considerable public opposition. But organized labor is not giving up on binding arbitration, which would allow unions bosses to corral more companies into paying into some severely underfunded pension funds. For more on EFCA’s binding arbitration provision, see here and here. «

Pingback| 7.27.09 @ 4:30PM

The Wall Street Journal on the Union Pension Debacle | OpenMarket.org links to this page. Here’s an excerpt:

…millions in new liabilities in the form of payment obligations into severely underfunded pension funds. For more on union pension funds, see here and here. For more on binding arbitration, see here and here. « Put it in quotes: health care “reform” This Post has No Responses, Be the First to Comment Leave a Reply Click here to cancel reply. Name (required) Mail (will not be published)…

Pingback| 9.4.09 @ 6:32PM

Happy Labor Day! | OpenMarket.org links to this page. Here’s an excerpt:

…in trying to keep their grossly underfunded union pension funds from going bust, as Irwin Stelzer also notes in his Washington Examiner column today. For more on union pension funds, see here and here. « UN Declares Dictator Fidel Castro “World Hero of Solidarity” This Post has No Responses, Be the First to Comment Leave a Reply Click here to cancel reply. Name (required) Mail (will…

Pingback| 9.5.09 @ 1:39AM

Happy Labor Day! | OpenMarket.org – CelebrityTwitterGossip.com links to this page. Here’s an excerpt:

…in trying to keep their grossly underfunded union pension funds from going bust, as Irwin Stelzer also notes in his Washington Examiner column today. For more on union pension funds, see here and here. - gossip twitter celebrity gossip bytopgossip1 Posted in: Uncategorized. Tagged: american spectator · celebrity gossip · education survey · irwin stelzer · labor unions…

Lingerie | 9.11.09 @ 2:28AM

sexy lingerie lingerie

Pingback| 12.29.09 @ 5:38PM

Say No to EFCA in 2010 | OpenMarket.org links to this page. Here’s an excerpt:

…nothing worse than management’s final offer. Worse, binding arbitration could impose huge liabilities on a newly unionized companies without the management having a say. One particularly dangerous liability would be the obligation to pay into dangerously underfunded union pension funds. EFCA would allow unions to keep these funds going — for a time — by corralling in new workers into…

Pingback| 2.22.10 @ 1:07PM

Myths about Labor Myths | OpenMarket.org links to this page. Here’s an excerpt:

…than management’s final offer in arbitration. Third, binding arbitration could impose huge liabilities on a newly unionized companies without the management having a say. One particularly  dangerous liability would be the obligation to pay into  dangerously underfunded union pension funds. Finally, EFCA’s increased employer penalty provision would give unions another tool with which to pressure…

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