Administrative costs for collectively bargained pension plans for union workers are on average at least 25 percent higher than for non-union pension funds, according to an analysis of government reports.
The retirement savings of millions of union workers could be endangered by these higher costs in combination with rising liabilities and lack of portability, said Justin Wilson, managing director of the Center for Union Facts, a non-profit watchdog group, who did the analysis. More than 9.8 million union workers are covered in these plans, according to the Pension Benefit Guarantee Corporation (PGBC) 2007 data book.
Administrative costs for pension plans are disclosed on forms known as “5500s” filed annually with the U.S. Department of Labor (DOL). The forms also report the ratio of assets to liabilities.
Wilson examined more than 6,000 of these forms dating back to 2005 in his comparison. For collectively bargained plans, the median was 0.797 percent, compared to 0.594 percent for non-collectively bargained plans.
As an example, in 2006, Teamsters Local 830 Laundry Division & The Philadelphia Textile Maintenance & Other Industries Pension Plan, with 230 participants, had $135,433 in administrative costs. That compared to the Alcatel Data Networks Inc. Retirement Pension Plan, with 342 participants, and administrative costs of $50,848.
The 10 most expensive plans in 2005 were: Hip Health Plan of Florida – Office & Professional Employees International Union Pension Plan and Trust; California Frozen Food Industry Pension Trust Fund; Fur Workers Local 3f Pension Plan; Local 29 R.W.D.S.U. Pension Fund; Washington-Oregon Furniture Workers Pension Fund; Motion Picture Laboratory Technicians Local 702 Pension Fund; Graphic Communications Union Local 51 Bindery Employers Pension Fund; Minnesota Laundry and Health Care Workers Pension Plan, and United Optical Workers Local 408 Pension Fund.
Under the Employment Retirement Security Act (ERISA), plan managers are required to monitor administrative costs, which include recording keeping, accounting activities, and legal services.
“The expenses may seem small because sometimes we are talking about fractions of a percent,” Wilson said. “But anyone who invests will know that these costs quickly compound because the money is taken out before it is invested.”
For instance, $100,000 invested in an average union fund today and allowed to compound or 30 years at 6% interest would be worth $452,000. The same amount invested in an average non-union fund would be worth $480,000, according to bankrate.com.
Multi-employer pension plans, which are typically negotiated by labor unions for their rank and file members, have experienced a steady erosion in assets that has been evident for at least the past 10 years, said Diana Furchtgott-Roth, a senior fellow with the Hudson Institute, who authored a report concerning rising liabilities.
These plans can be more expensive than single employer plans because of the time, effort and logistics involved with collecting funds from the various companies, Wilson said.
David Blumenstein, vice-president and head of multi-employer practice at Segal Company, said the disparity in administrative costs that show up on 5500 forms can be overstated because some of the costs under single employer plans are absorbed back in the company and do not need to be reported. Moreover, certain expenses are added into administrative calculations that should not be included, he said.
Segal Company is listed as the actuary firm for 438 collectively bargained plans, more than any other firm.
“There’s a great deal of confusion on the 5500s between investment expense and planned administrative expense, a lot of times these are grouped together and that might lead to the inaccuracy of the comparisons,” Blumenstein said.
“Also with single employer plans you don’t ever see a lot of the costs because they are absorbed back into the company, into their human resources department, information technology, or financial department. With multi-employer plans the only way to handle the administrative costs is through the plan itself. So the comparison here is not apt.”
In response Wilson excluded multi-employer plans and determined that collectively bargained single-employer plans are still significantly more expensive than non-collectively bargained single-employer plans.
