The maker of Twinkies has decided to liquidate its business and eliminate 18,500 jobs as a result of its labor dispute with the bakers union, as we reported earlier today.
But there's a broader story here, and it's worth analyzing. The story concerns both the power and lack of power of unions when they use the strike weapon, and the often widespread effect on workers as well as the company's underfunded pension benefits when a company liquidates and ceases to operate.
Hostess Collapse: A Sour Bite of Reality for Workers tells the tale:
"The collapse and probable liquidation of Twinkie-maker Hostess Brands
Inc. is a sobering reality check for unions and workers looking to
shift the post-recession balance of power with private employers.
Hostess management has put much of the blame for its decision earlier today to liquidate the company and
eliminate up to 18,000 jobs on the intransigence of the Bakery,
Confectionery, Tobacco Workers and Grain Millers Union, which earlier
this month launched strikes at about two-thirds of the company’s plants
to protest cuts in wages and benefits proposed by CEO Gregory Rayburn.
Unions and their representatives have made detailed arguments
that management bears substantial responsibility for the company’s
woes. Harry J. Wilson, a restructuring expert hired by the Teamsters
Union, writes in an analysis here that
Hostess management failed to invest in new products, bungled pricing
strategy, and didn’t properly execute plans for reducing costs. Mr.
Wilson noted that the U.S. operations of rival mega-baker Grupo Bimbo
SAB of Mexico are heavily unionized, but Bimbo grew profitably even as
Hostess fell apart. (Bimbo might be among the potential acquirers of
what’s left of Hostess and its brands, including the recipes for
Twinkies and Wonder Bread.)
The Teamsters, however, didn’t vote to strike Hostess, and pleaded with the bakers’ union to find a way out of its confrontation. In a statement today, the Teamsters said,
“ Teamster Hostess members, based on the facts and advice from
respected restructuring advisors, understood what was at stake and voted
to protect all jobs at Hostess.”
The Teamsters’ posture in this dispute points to the limits of union
power in the U.S. private sector, notwithstanding the success organized
labor had in its drive to re-elect President Barack Obama.
A strike is one of the most potent weapons a union has in a dispute
with management. But as the Hostess situation illustrates, the risks
that a strike will backfire are high – especially when employers can
reach for red buttons of their own, such as bankruptcy or shuttering
unionized operations.
U.S. union leaders have been reluctant to call for strikes ever since
1981, when President Ronald Reagan responded to a walkout by unionized
air traffic controllers by firing them all.
Data on large-scale work stoppages
compiled by the U.S. Department of Labor show that from 1976 through
1981, there were an average of 263 strikes a year involving at least
1,000 workers. From 1982 through 2011, the number of strikes plunged to
an average of 36 per year. In 2009, during the depths of the Great
Recession, there were just 5 large strikes recorded by the Labor
Department. In 2010, there were 11 and there were 19 in 2011. . . . the Hostess collapse highlights the risks for workers,
especially at a time when only 6.9% of private sector employees belong
to unions.
Not only paychecks are at risk, but pensions, too. Companies that
respond to a labor dispute by reorganizing under bankruptcy laws – or
liquidating – can look to unload their union pension funds on the
Pension Benefit Guarantee Corp., a government agency that serves as a
backstop for traditional corporate retirement plans.
Hostess has reported that as of April 2011, its defined benefit
pension plan had assets valued at $56 million – and liabilities
estimated at $84 million. Hostess has also sought to withdraw from some
40 multi-employer pension funds to which it was required to contribute
under its union agreements. . . . Bimbo has cried foul,
saying if Hostess doesn’t pay up, Bimbo and other companies left in the
multi-employer pension funds would get stuck with $2 billion added
liability.
Multi-employer pension funds cover more than 10 million U.S. workers,
according to the PBGC. But many of these pension trusts are
“substantially underfunded, and for some, the traditional remedies of
increasing funding or reducing future benefit accruals won’t be enough,”
PBGC director Joshua Gotbaum said in congressional testimony earlier
this year.
And what of the PBGC, itself? Mr. Gotbaum warned that as of September 2011, the PBGC’s liabilities exceeded its assets by $26 billion."
Summing Up
The Teamsters acted like grownups while the bakers union acted like spoiled children. Now everybody will lose their jobs as the company is liquidated. But it won't end there.
In fact, We the People as taxpayers will end up on the hook again to pay for unemployment compensation and things like food stamps for the workers who will lose their jobs. But it won't end there either.
We'll also be on the hook to provide government guaranteed pension benefits as the PBGC is already underfunded. Just another example of government guarantees which end up costing taxpayers unexpectedly as insufficient funds have been set aside to meet the promised obligations.
In addition, Hostess employees who do get PBGC benefits will undoubtedly receive lower amounts than expected, since their years worked have been cut short and, in addition, PBGC government guarantees will certainly be lower than what the pension plan itself would have provided.
And since the company is liquidating, it will have no more earnings to contribute to its pension plans.
But let's end on a "happy note." You can bet that the bakers union leaders won't lose either their jobs or their pension benefits. They're undoubtedly not covered by the same pension plans that they negotiated for their members.
Aristocracy is alive and well in unions. Their leaders are "special and privileged" characters.
Thanks. Bob.
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