A coal miner pension bailout could set the stage for a multi-trillion-dollar taxpayer bailout. Don't do it

A bipartisan group of federal  lawmakers from coal country have introduced an updated bill to use federal taxpayer dollars to pay for the broken promises of one particular coal mining union—the United Mine Workers of America, or UMWA.

If passed, this bill could be the tip of a multi-trillion dollar taxpayer bailout. President Trump, whose sympathy for the miners is well known, should beware, along with Congress.

That’s because the UMWA is not the only pension plan that has made promises to its workers and failed to set aside the funds to keep those promises. Out of nearly 1,400 union-run or “multiemployer” pension plans across the U.S., 85 percent of them are less than 70 percent funded, and they have promised $500 billion more than they can pay.

The second proposed “funding” mechanism is a taxpayer loan to the insolvent pension plan—which is no different than a straight-up bailout. When there’s virtually no chance of repayment, that’s not a “secure loan.”

State and local public pension plans, such as those for teachers and firefighters, have promised another $5 trillion more than they set aside to pay. 

Proponents of a UMWA bailout claim that the costs will be covered in part by existing government funds, especially the Abandoned Mine Land Reclamation Fund, but that’s simply not true.  A Congressional Research Service report confirms that there’s no money left in the fund, as the UMWA has already tapped every last available cent to cover its unfunded health care promises.

The second  proposed “funding” mechanism is a taxpayer loan to the  insolvent pension plan—which is no different than a straight-up bailout. This is like a bank providing a 30-year loan to homeowners who are in foreclosure and whose incomes cover only 10 percent of their mortgage costs.  When there’s virtually no chance of repayment, that’s not a “secure loan.”

Overall, the UMWA has racked up $5.6 billion in unfunded pension promises. It has only one person paying into the pension fund for every seven retirees receiving benefits, and for every dollar that leaves its pension fund, it collects less than 16 cents in new contributions.

How can taxpayers expect that the UMWA will be able to repay its loans with an income and balance sheet like that?

Although the decline in the coal industry—due in no small part to excessive Obama-era regulations—exacerbated the UMWA’s pension problem, it is in no way the cause. After all, if private companies go out of business, their workers’ 401(k) accounts don’t lose value or disappear completely. 

The problem with the UMWA and many other union-run and public sector pension plans across the country is that those who promised future retirement benefits didn’t set aside the funds necessary to pay them.

When the UMWA fund was first established in 1946, the UMWA fought vehemently to pay out pension benefits the very next year, to workers who never earned them. And in the seven decades since, the UMWA has consistently failed to set aside the money needed to make good on the promises it made to hard-working coalminers.

So what happens if Congress doesn’t step in to bail out the UMWA’s unfunded pension promises?

The same thing that has and continues to happen to all other union-run pension plans that become insolvent. 

The government’s Pension Benefit Guaranty Corporation (PBGC)—not a taxpayer-financed government entity—steps in and begins paying workers their insured benefits.  Those are typically less than workers would have received if their union plans had been able to keep their promises. The average UMWA pensioner who receives about $530 per month would have their check reduced by about 10 percent, or $50 per month.

The PBGC is already paying benefits to retirees of more than 50 failed union-run pension plans, with another 60 plans “booked” within the PBGC because of their near certain short-term failure. Politicians didn’t seek taxpayer bailouts on behalf of any of these pension plans, perhaps because they weren’t as big or politically powerful as the UMWA.       

Never before in history has the U.S. government bailed out a private or public sector pension plan. Unless Congress is prepared to force taxpayers to bail out trillions of dollars in unfunded pension promises across the country—and set the precedent that employers can promise whatever they want in future pension benefits without having to make good on those promises—this is a line policymakers should not cross, even for an iconic, beleaguered industry like coal.   

Rachel Greszler is a Research Fellow in Economics, Budget and Entitlements at the Heritage Foundation.