By Martin Regg Cohn, Press Secretary of the American Insurance Association, a trade association for the property/casualty insurance industry.
It’s happened again: The union representing railroad employees in North Carolina, the Transport Workers Union of America (TWU), suddenly wants to get rid of that $91 million-a-year federal subsidy the nonprofit group receives to operate its pension plan.
Facts of the matter, uncovered by the National Review, show that for years the TWU has been dodging the same Old Testament-style fate as the OWS movement, creating millions in untaxed cash that can be used to rent a Washington DC apartment, pay for a union staff lawyer, buy fancy suits and invest in first-class airfare – some of which went directly into the pockets of politicians in favor of the Democrat party.
The issue is simple. The longtime rail unions were spun off from American union apparatus decades ago and have operated, with the agreement of the Federal Railroad Administration, as independent nonprofit groups. The federal government guaranteed that each rail operator – of which the TA is one – had a fair share of pension funding to care for retired workers, who sit comfortably on fat pensions.
For their part, the unions claim that only 5 percent of their workers are in their pension plan. At most, one in 10 are in the plan. But as of January 2011, the program was in deficit by $1.4 billion.
Under pressure from the public, the rail unions have virtually ignored their spending since 2011 and the last payment for pension funding is due on June 30, 2018.
The unions are desperate, and desperately for money, as a new two-part campaign is launched. The first is to drive a political message, asking congress to extend federal pension funding. The second is to force the railroad administration to stop propping up the pension fund until it turns a profit and incurs the pension obligation.
The rail unions have a very dark political agenda. The federal government needs to effectively manage a pension fund, and that includes addressing the biggest underlying problem – an unsustainably low-interest rate paid by the fund to its own workers.
One means is to increase investment returns, by breaking the yield on the $1.5 trillion pension pot. The current yield is 3.46 percent – far below the 7.62 percent that, by law, the government promised the rail unions for providing a safe rail system.
But if the nation’s unions want an institution that they trust to invest the nation’s transit funds efficiently, the unions should start with the shareholders of the two principal rail unions, the Society of Professional Engineering Employees in Aerospace (SPEEA) and the Association of American Railroads (AAR).
As reported by KALW, both rail unions have received tens of millions of dollars from the CEO-level rail executives – with many of those executives being railroad union leadership. Spurred by frequent requests from AAR President Phillip H. Price to collect millions in commissions from management purchases of share-based pensions, the boards of SPEEA and AAR have all approved spending on share purchases, and have not held executives accountable.
With share performance of only 1.9 percent this year, it’s far worse than the returns delivered by mutual funds in major index funds. That’s a return of less than 0.1 percent.
In particular, there are red flags in relation to the extent to which investment funds are leaving a gap of $165 million between funds earmarked to meet pension fund obligations and the actual cash and investments the rail unions need to pay their pensions.
One could say that’s corruption, and that’s what has been happening. As a result, the pensions are increasing the risk that some of those in the program will outlive their money, because the sum is actually smaller than what needs to be accumulated to meet the payments.
It’s a reality check for union leaders who just last year said as much and pledged to take the necessary actions to meet the obligations to the union’s members and retirees. They’ve been sorely failing.
As for the federal authorities, they need to make sure that this congressional-funded pension program is held accountable and that the incentives to have union leaders, not their shareholders, live up to the investment performance promised to them as promised.
Martin Regg Cohn is Press Secretary of the American Insurance Association.
