Tags: pension | funding

Credit Suisse: US Unions' Pension Hole Deepens

Monday, 09 Apr 2012 04:51 PM

U.S. labor unions owe far more money into their pension plans than previously thought, as much as $369 billion, according to a study by investment bank Credit Suisse.

That means so-called multi-employer pension plans are just over half-funded, reports the Financial Times. Small to mid-sized companies are in the worst shape; of the total, $43 billion corresponds to companies in the S&P 500, among them names such as Safeway and UPS.

The pension plans cover 10 million people. Credit Suisse reviewed 1,350 separate plans to develop its research on the liability. The plans have made the case that they are 81 percent funded, based on the differing calculations and the assumption of a 7.5 percent annual return on investment.

Taxpayers would be on the hook for major shortfalls in corporate pensions, which are insured by the federal government through the Pension Benefit Guaranty Corporation (PBGC).

The Heritage Foundation estimates that taxpayers are already likely to have to send $23 billion to the PBGC to keep it solvent. Now, language inserted in a highway bill would let companies put even less into the fund backing their own pensions.

“One reason that the provision was added to the Senate transportation bill is that the reduced pension contributions, which are tax deductible, would increase corporate profits so much that it would increase federal corporate tax collections by about $7 billion,” writes David C. John, a senior research fellow at Heritage.

“That money would help offset the cost of the bill, but such a significant reduction in pension contributions should send a strong warning. If contributions to defined-benefit pension plans fall that much while pension benefit promises continue to be stable or to grow, someone else may end up paying the difference. And that someone else is almost certain to be the taxpayers.”

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