Pension plans for union officers remain healthy and well-funded even as rising liabilities threaten to consume the savings of their rank and file counterparts who participate in different funds within the same labor organization, according to a Hudson Institute study.
This disparity became evident from a sample of the 21 largest union and staff pension plans from the same organizations. They are: The Service Employees International Union, UNITE-HERE, the United Steelworkers, the United Food and Commercial Workers, the Plumbers and Pipefitters, the International Brotherhood of Electrical Workers, the Sheet Metal Workers and the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union.
“This issue of rank and file pension plans being funded less than the officer pension plans is extraordinarily serious and shows a great moral failing on the part of the unions,” said Diana Furchtgott-Roth, a senior fellow with the Hudson Institute who authored the study.
“They’re just not putting enough money into the rank and file plans. My suspicion is that when unions bargain with an employer for a benefits package they are focusing on wage increases because this is more visible to the membership and they are not focusing on pension benefits.”
As of 2005, none of the rank-and-file pension plans were fully funded, seven were in critical condition and 14 had less than 80 percent of their needed assets, the study showed. By contrast, 23 officer and staff funds from the same unions were much better off, Furchtgott-Roth said.
“Taken together, the funds for officers had 88 percent of their needed funding,” she said. “Six of the funds were fully funded and 20 of the funds had more than 80 percent of their needed assets. None of the funds was in critical condition.”
Pensions with less than 80 percent of the assets needed to cover present and projected liabilities are considered “endangered,” while those that fall below a 65 percent threshold are classified as “critical” under the Pension Protection Act of 2006.
Multi-employer pension funds, which are typically used as part of union plans, have experienced a steady erosion in assets that has been evident for at least the past 10 years, according to 5500 forms filed with the U.S. Labor Department. These same forms, which record the ratio of assets to liabilities, were used as the basis for the study.
“Unions attract members by telling them they will look after them and that these plans are fully funded but they are not,” Furchtgott-Roth said. “Yet they are fully funding their own officer pensions. What we have are new members joining up so they can guarantee that the officers will have a secure retirement. In some cases they are giving up existing 401k pensions that do better than these underfund Ponzi schemes. The membership dues are not being used to build up assets they are being used to fund the officer’s retirements and to cover current retirees.”
The average union pension has resources to cover only 62 percent of what is owed to participants and less than one in every 160 workers is covered by a union pension with the required the assets, according to the Pension Benefit Guarantee Corporation (PBGC).
Furchtgott-Roth used six case histories to highlight the problems and deficiencies in union pension plans for rank-and-file members. For example, she found that in 2006 the SEIU National Industry Pension Plan for members was only 75 percent funded, while a pension fund for SEIU officers was actually 103 percent funded and another separate fund for the union’s own employees was 91 percent funded.
In a press release responding to these statistics, the SEIU union claimed that its national pension fund for rank and file members was 92 percent funded in 2006 and that as of Jan 1 2008 it was funded at 98 percent.
“I don’t pull these numbers out of the sky,” Furchtgott-Roth said. “They come from the 5500 forms and they show these plans are in trouble. Now after attacking me for saying their pensions for rank-and-file members are underfunded and putting out other numbers the SEIU is expected to file a new report with the Department of Labor later this week showing their status is critical for 2007. This means they would be less than 65 percent funded for that time.”
The poor performance of certain funds can be attributed to an overall weak economy and sub-par investment returns, SEIU officials have said. But this explanation does not account for the discrepancy between underfunded rank-and-file plans and the retirement reserves for union officers, Furchtgott-Roth argued.
The three SEIU plans mentioned in the study are merged into a single trust and come under the same management, she explained. This would suggest that neither poor market returns nor a weak economy account for the underfunding of plans for the regular membership.
“The only difference between them is that decisions regarding contributions to the officers’ funds are made by the officers of the SEIU alone, instead of by several large employers pursuant to collective bargaining contracts,” she said. “Therefore, the difference in funding status must be due to differences in contribution, not management or market performance. The success of the officers’ funds shows the heads of the national organization know how to properly fund a pension plan if they choose.”
The funding challenges affecting SEIU also extend to 13 of its local plans. In 2005 and 2006 all of these plans were less than 80 percent funded and seven were less than 65 percent funded, according to the study.
Mark McKinnon, a spokesman with the Workforce Fairness Institute, worries that under the arbitration component of the Employee Free Choice Act (aka Card Check) current non-union workers and private firms could be forced into underfunded plans at the expense of their own retirement.
“I think this is the ticking time bomb and when you blow all of the smoke away this may be the rationale for the urgency,” he said. “Labor understands they have enormous pension liability and this legislation is needed to save them.”
Under Card Check’s mandatory arbitration provision, labor and management have 120 days to reach an agreement before two-year contracts are set by federal mediators. Card check critics say this gives unions no incentive to bargain in good faith while holding out for federal intervention, McKinnon said.
The WFI recent held a forum in Virginia with former Massachusetts Gov. Mitt Romney to discuss the negative impact of EFCA on business. In his talk the former Republican presidential candidate described the Employee ‘Forced’ Choice Act as “dangerous legislation” that is “political payback” to the union bosses.
“America is the product of decade-upon-decade of free enterprise. The costs to the nation would be so severe that elected officials have to back away from it and do what’s right for the country,” Romney said. “The Employee ‘Forced’ Choice Act would have a negative impact on our ability as a nation to compete globally and it would place a huge damper on new business.”
Underfunded pension plans were also discussed.
“One of the details about EFCA that is just now starting to get attention is the fact that mandatory, binding arbitration would allow private employers to be forced into failing union pension plans without their consent,” said Brett McMahon vice president of Miller and Long Construction. “Forcing small businesses into mismanaged pension plans would result in massive liabilities that would be devastating for workers and employers.”
