Monday, October 18, 2010

Will November be the death knell for big labor unions?

We all know that unions for years have used their "bargaining power" to coerce business to accept contracts that in the far off future would have to be dealt with. The accounting profession has, until now, ignored this potential time-bomb. Companies that have these toxic pension agreements, as of Nov. 1, will have to report these contingent liabilities. No longer will the unions be able to bully companies into these types of contracts and companies will scramble to rid themselves and mitigate the potential damage these pension can do.

On Nov. 1, the Financial Accounting Standards Board (FASB) ceases to take public comment on a new rule requiring that companies more accurately report liabilities they have from participation in multiemployer pension plans. Unless FASB is persuaded otherwise, the rule takes effect Dec. 15.

There are some 1,500 multiemployer pension plans in the United States, which are unique to unions. In these plans, multiple companies pay into the pension plan, but each company assumes the total liability.

Under "last man standing" accounting rules, if five companies are in a plan and four go bankrupt, the fifth company is responsible for meeting the pension obligations for the employees of the other four companies.

What this means is that companies with union labor often have pension liabilities that are several multiples higher than the pension expenditures they report -- the Kroger grocery store chain shocked analysts last year when it disclosed its multiemployer pension liabilities more than doubled in a year to $1.2 billion.

Ratings agencies such as Moody's and Standard and Poor's have been highlighting the lack of transparency in union pension plans. Now Wall Street wants union businesses to be upfront about their liabilities.

FASB's new rule could effectively wipe out the paper worth of many companies, especially in the trucking and construction industries. Once banks and creditors are aware of these staggering pension liabilities, it will make it nearly impossible for union businesses to get loans, credit lines or bonding.

If forced to report their true liabilities, hundreds -- perhaps thousands -- of companies will scramble to get out from under their union obligations.

"The blind panic is un-frickin'-believable. [Unions] are flipping out," says Brett McMahon, a representative of Associated Builders and Contractors and vice president of Miller & Long Concrete Construction.

Read Washington Examiner article here.

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