Like many union-run pension plans, the Washington Metropolitan Area Transit Administration—otherwise known as D.C. metro—has promised far more in pension benefits than it has set aside to pay. According to recent reports, the pension shortfall is $2.8 billion.
This kind of overpromising of pension benefits is commonplace for union-run (also known as multiemployer plans) and public pension plans. This is possible because multiemployer pension insolvencies can’t bankrupt either the companies that participate in them or the union that runs them, as single-employer pension plans can. And since state governments can’t go bankrupt, it’s future taxpayers who are on the hook for their excessive promise. Moreover, the union officials and politicians who help secure unrealistic pension promises are usually long gone by the time those promises come due.
Federal law stipulates rules to help ensure that private pensions make adequate contributions, but union-run plans operate under a different set of rules and state and local pensions are exempt from federal rules. As a result, union and public pension plans often use Enron-style accounting standards to contribute only half of what is required by similar, non-union pension plans in the private sector. And some plans—particularly public plans—are able to short-change or skip completely their required contributions without consequence.
So why should taxpayers care about Metro’s pensions? After all, if Metro can’t pay what it has promised, won’t it be the Metro employees who get short-changed?
Not quite. Under current law, if Metro’s pension plan goes insolvent, taxpayers in DC, Maryland and Virginia would likely be on the hook. That’s because Metro is jointly funded by these three jurisdictions. But spreading billions of dollars in unfunded pension obligations across just DC, Maryland and Virginia would create a heavy burden for these jurisdictions, which already have significant unfunded pension liabilities of their own. Certainly taxpayers in DC, Maryland and Virginia would strongly oppose having to pay metros unfunded pensions.
So why not lessen the opposition and per-taxpayer load by dispersing metro’s unfunded pension costs—along with its hundreds of millions in annual operating deficits—across all federal taxpayers, including those who don’t live anywhere near where metro operates and don’t receive any benefit from metro’s services?
That is what Metro board Chairman Jack Evans recently suggested—a federal takeover of Metro, including assumption of its $2.8 billion in unfunded pension liabilities. If the federal government took over Metro and its pension obligations, Metro pensioners would have a greater likelihood of being spared potential benefit cuts.
And if the federal government bails out metro’s $2.8 billion in unfunded pensions obligations, what will stop it from bailing out more than $600 billion in union-run private pensions and an estimated $5.6 trillion in state and local public pensions?
Aside from the terrible precedent that such a federal bailout of private pensions would set, a federal takeover of Metro would not fix its problems. After all, the federal government is no model of efficiency. Rather than forcing Metro to become fiscally sustainable, a federal takeover would allow Metro’s unsustainable operations to continue unchecked with taxpayers bearing the cost.
A federal bailout would force taxpayers across the U.S. to pay for Metro’s failure to set aside enough money to pay its promises. This would be great news for Metro retirees and pensioners and D.C., Maryland and Virginia taxpayers, but it would be horrible news for other taxpayers who would have to pay Metro retirees’ pensions while also saving for and funding their own retirements.
It is not just D.C. Metro’s unfunded pension costs that are at stake here. State and local public pensions across the country have promised an estimated $5.6 trillion more in pension benefits than they have set aside to pay and private union pension plans have promised over $600 billion more in benefits they can afford to pay.
While the federal government has never before in history bailed out a private sector or state or local pension plan, the Senate Finance Committee passed a bill on September 22, 2016—S. 1714, the Miners Protection Act—that would do just that for one particular private sector union. That union is the United Mine Workers of America (UMWA) and it has promised $5.6 billion in pension benefits that it can’t afford to pay.
A bailout for the UMWA or D.C. Metro would undoubtedly lead to future bailouts for many, if not all, public and union pensions.
Congress must not open the door to pension bailouts. Doing so could cost taxpayers trillions of dollars, and it would encourage pension plans across the country to recklessly promise more than they can afford to pay.
With the UMWA’s pension bailout already passed out of committee and with increasing bailout requests coming from plans like D.C. Metro, it is critical that Congress draw a clear line in the sand and prevent the UMWA pension bailout from final passage. Only when private and public pension plans know that a federal bailout is off the table will they be incentivized to protect both their pensioners and the taxpayers.
Editor’s Note: This article has been updated to correct a previously reported version that incorrectly categorized D.C. Metro pensions as private, union-run plans.
