Top Economist Warns Congress: Passing Pair of Union-Backed Bills Would Create a ‘Ponzi Scheme as Bad as Bernie Madoff’

August 31, 2010 - 3:22 PM
Diana Furchtgott-Roth, former chief economist for the U.S. Department of Labor, said Tuesday that if Congress passes the card-check bill, unions would reap a harvest of  new members, who would be forced to pay into failing union pension plans.

(Photo courtesy of the Hudson Institute)

(CNSNews.com) – An economist at the nonpartisan Hudson Institute says that if House and Senate Democrats pass the Employee Free Choice Act (EFCA) -- known as the “card check bill” -- in this Congress, it would create a “ponzi scheme” environment.

Diana Furchtgott-Roth, a former chief economist at the U.S. Department of Labor, told CNSNews.com on Tuesday that implementing card check would allow unions to swell their ranks with new members who would have to be signed up and pay money into failing union pension plans.
 
“It shouldn’t be allowed,” she said. “It’s a ponzi scheme as bad as Bernie Madoff.”
 
EFCA would do away with secret ballot elections for unions, which critics say would open the door to employees being pressured into voting to unionize. Additionally, the new union members could be entered into a multi-employer plan that is badly under-funded, and the wages they would pay into the fund would not go toward their own retirement, but would likely go to fulfill liabilities already owed to new and existing retirees.
 
Furchtgott-Roth, who has served in every Republican presidential administration since Reagan, spoke to CNSNews.com on a conference call with reporters announcing the release of her new report, “Union Pensions at Risk,” which explains that the most recent data shows nearly a quarter (24 percent) of union-run multi-employer plans were “endangered,” meaning that they only had assets to pay 65 to 80 percent of their liabilities.
 
Additionally, she pointed out that while only 1.5 percent of non-union pension plans were in “critical” status (or less than 65 percent funded), more than 12 percent of union-run plans were in critical condition.
 
She told CNSNews.com that EFCA would “take away the secret ballot in unions elections and it would impose mandatory arbitration between newly unionized firms and the unions, and an arbitrator would set in place a contract that would hold for two years. What’s especially interesting is that the arbitrators would have the power to put these rank-and-file, newly unionized workers into these under-funded pension plans. That’s very much how (EFCA) relates to the multi-employer pension problems that we are having now.”
 
“(T)he idea of these new recruited members being required to sign up for under-funded pension plans, having their assets go in to bail out existing retirees --- that is completely unfair, too,” Furchtgott-Roth said. “And if by any chance the Employee Free Choice Act should pass -- which I very much hope it won’t -- there should be a law against putting new members’ funds into under-funded pension plans. It shouldn’t be allowed. It’s a Ponzi scheme as bad as Bernie Madoff.”
 
EFCA has been joined more recently by a bill introduced by Sen. Bob Casey (D-Pa.), the Create Jobs and Save Benefits Act of 2010, which as CNSNews.com previously reported would create a new taxpayer-backed fund tasked with directly bailing out the under-funded union pension plans.
 
Furchtgott-Roth is opposed to that bailout too, pointing out in her report that it would come at a potential cost of $165 billion to the taxpayer. “This would be a mistake,” she wrote. “Such a bailout would add to the federal budget deficit, projected at $1.5 trillion next fiscal year. It would reward a union pattern of negotiating for high up-front wages and benefits while neglecting the health of the pension funds.”
 
CNSNews.com pointed out to Furchtgott-Roth that part of the argument Democrats have put forth in support of passage for the bills is that they strengthen workers’ rights—helping them to more easily unionize and protecting the benefits they were promised they would receive—instead of holding rank-and-file members responsible for the failing plans.
 
When he introduced his bill, Sen. Casey said it would “correct these problems to protect the pensions of workers and unburden companies stuck paying a crippling expense that threatens its existence and the jobs of its employees.”
 
Furchtgott-Roth, however, pointed out that many other people are also in dire financial situations, but are not receiving bailouts.
 
“(W)e have also other pensions that are failing in the state and local area. Social Security is projected to be in failing capacity some decades out. There are over 14 million Americans who are unemployed right now. There are a lot of people what are in not good situations,” she told CNSNews.com. 

“The people who are responsible are the people who are managing the pension funds and they are misleading the rank and file, and the rank and file of course does not deserve to be held responsible, but when you sign up for a pension and people tell you that it’s fine, then it is a very difficult situation.”

She added in her report that “it would be unjust to burden the taxpayers with making good on excessive promises by unions and employers. Rather, multiemployer pension plans have to be revised so that contirubtions are raised and benefits are lowered—just as needs to happen to other pensions in trouble, such as state government plans and Social Security.”
 
Furchtgott-Roth said the continued poor status of union-run pension plans suggests that union trustees “are not adequately striving to ensure that rank-and-file members have the stable financial futures they have been promised.”
 
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The following is a transcript of Furchtgott-Roth’s exchange with CNSNews.com:
 
CNSNews.com: How do you react to the argument that rank-and-file members who are in these plans that are in grave condition don’t deserve to be held responsible for the behavior of those who are managing the fund?
 
Diana Furchtgott-Roth: Right, yes. Well, it’s not – it’s not clear who deserves to be held responsible. The people who are responsible are the people who are managing the pension funds and they are misleading the rank-and-file, and the rank-and-file, of course, does not deserve to be held responsible, but when you sign up for a pension and people tell you that it’s fine, then it is a very difficult situation.
 
The Employee Free Choice Act—what that would do is take away the secret ballot in union election and it would impose mandatory arbitration between newly unionized firms and the unions. And arbitrators would set in place a contract that would hold for two years. What’s especially interesting is that the arbitrators would have the power to put these rank-and-file newly unionized workers into these under-funded pension plans.

That’s very much how the Employee Free Choice Act relates to the multi-employer pension problems that we are having now. Unions very much want it to pass because that way they’ll have more—they’ll be able to get more members, partly by intimidation because of the lack of the secret ballot.

They’ll be able to visit people at home and give them a card -- that’s why the bill is known as “Card Check” -- and say, “Check this card-- that means you want to join the union.” And then they could take this card as proof and that would help unionize the firm. So, first of all, the intimidation placed on the workers is something that we have no right to let happen.

In fact, (House Education and Labor Committee) Chairman George Miller went to Mexico a few years ago and wrote a letter to the Mexicans saying they had to have secret ballot in union elections -- and if they do, we certainly do. The second, the idea of these new recruited members being required to sign up for under-funded pension plans, having their assets go in to bail out existing retirees-- that is completely unfair, too. And if by any chance the Employee Free Choice Act should pass—which I very much hope it won’t—there should be a law against putting new members’ funds into under-funded pension plans. It shouldn’t be allowed. It’s a ponzi scheme as bad as Bernie Madoff.
 
CNSNews.com: But it seems to me that part of the argument for passing both Card Check and the Create Jobs and Save Benefits Act is that the people who are first in line now for benefits basically will be abandoned by the taxpayer because they’ve gotten into this situation because of the economic downturn and if we don’t pass it, then somehow Americans and their representatives are ignoring those people’s hardships.
 
Diana Furchtgott-Roth: Well, the – it is a very, very tough situation. The PBGC bails them out up to $12,870 a year. That’s the maximum that PBGC pays for—per year – for people who have been signed up to failed multi-employer pension plans. But we have also other pensions that are failing in the state and local area. Social Security is projected to be in failing capacity some decades out. There are over 14 million Americans who are unemployed right now. There are a lot of people who are not in good situations.