The Shame of Unions: Massively Underfunded Pensions

Nick Gillespie | July 24, 2009

Over at Investor's Business Daily, Sean Higgins recently reported a curious and disturbing and mostly uncommented upon feature of the debate over "card check" legislation, a.k.a. The Employee Free Choice Act. Democratic leaders may be willing to jettison some elements of the legislation if they can still get mandatory arbitration in place as a way of getting management to help jack up funding of dangerously underfunded union pensions.

How weak are union-managed pension funds? The Labor Department today lists 96 in "critical status", meaning they have less than 65% of the assets needed to cover present and projected liabilities.

Another 127 are listed as "endangered," with 65% to 80% of the necessary assets.

That is based on data from last summer, before the market's September meltdown. The Labor Department's list is set to be updated later this summer.

Cynthia Eagan, spokeswoman for the Central New York Painters and Allied Trades Pension Plan, said they had only enough assets to cover 54% of their liabilities.

"That was based on last year's numbers. This year's numbers are even worse," Eagan told IBD. Asked when the fund may be able to get out of critical status, she replied: "We're not able to say right now."...

Among large defined-benefit programs—those with more than 100 participants—the institute found that only 19% of union plans are fully funded vs. 37% of non-union plans. Overall, 11% of large union defined benefits programs fell in the DOL's "critical" status and another 28% were "endangered."

In Higgins' account, the most controversial element of card-check—the gutting of secret ballots for union representation in the workplace—may become a sacrificial lamb that allows other provisions, inlcuding getting employers to pony up extra dough to pension plans, to get through the Senate.

Whole story here.

Reason.com on labor here.

Comments

|7.24.09 @ 1:14PM|#

Astonishingly, though, many unions that manage pension funds for ordinary employees manage separate funds for the union's top officers, and those separate funds seem to be doing okay, unlike the ones for the working stiffs.

|7.24.09 @ 1:15PM|#

See for example this link.

|7.24.09 @ 1:23PM|#

Let us not forget that our friend Sgt. Crowley is a proud member of a public employee union. A fact, in and of itself, that does bear upon one's credibility as well as character.

|7.24.09 @ 1:25PM|#

If you lived in Cambridge, would you want to be responsible for "jacking up" the pension pool from which Mr. Crowley will be drawing his pension?

|7.24.09 @ 1:36PM|#

So, is this the next bailout or one further down the line?

|7.24.09 @ 1:37PM|#

Why don't they just offer a bailout for the pension funds? That way they can get it to pass as written.

qwerty|7.24.09 @ 1:53PM|#

Whoever invented the defined benefit pension deserves vilification. What a risky, stupid idea.

|7.24.09 @ 1:55PM|#

As a self avowed union hater I fail to see where Sgt. Crowleys membership in a union bears any influence, positive or negative, on his character or credibility.

I don't think it will matter where you live, as soon as the first pension checks start to bounce blood will run in the streets when the angry mobs go looking for the union bosses who have robbed the members.

Unions and other collectivist groups have bought into the Bismark idea that you can run a Ponzi scheme on the public and get away with it because you have the best intentions and motives. Didn't work in the Wiemar republic, doesn't work for Social Security and it didn't work for Bernie Madoff.

|7.24.09 @ 1:59PM|#

Nice piece of gamesmanship by the unions, putting out "card check" as a sacrificial lamb, when I suspect what they wanted more than card check is mandatory arbitration, which both

(a) lets them rewrite all their current contracts and

(b) helps enormously with organizing new workplaces, but dramatically tipping the balance of power their way.

Rich|7.24.09 @ 2:13PM|#

"Another 127 are listed as 'endangered,' ...."

No need for a bailout, folks, if we pay with coined money, since "endangered specie"'s already protected.

Seriously, yet another monster time bomb.

Paul|7.24.09 @ 2:14PM|#

It's aight... Obama's got their backs.

KenK|7.24.09 @ 2:17PM|#

There was a time when pension benefits were funded by high grade bonds purchased to mature when the pension payments were expected to be paid.

Then the government got involved.

cree|7.24.09 @ 2:22PM|#

AFAIK all pension plans have to put out a summary to participants each year showing, among other things, the percent of the liability that is covered by assets. Now if you were a union member paying significant dues, wouldn't you be watching such things?

kinnath|7.24.09 @ 2:30PM|#

Now if you were a union member paying significant dues, wouldn't you be watching such things?

No.

|7.24.09 @ 2:53PM|#

"Now if you were a union member paying significant dues, wouldn't you be watching such things?"

In many states its not like you have any measure of control over what the union does as a union member, so... I would say no.

No Name Guy|7.24.09 @ 2:54PM|#

"Now if you were a union member paying significant dues, wouldn't you be watching such things?"

But why would I need to? After all, my union bosses here at SPEEA have nothing but my best inerests at heart - that's why I can't have a cheaper, catastrophic only health plan and pocket the cash difference.

Same with the union bosses at the UAW - nothing but their members inerests at heart. And the Steelworkers. How about those union bosses at Eastern Airlines - the same ones who vowed "full pay to the last day". How'd that work out again?

In any event, this is merely a small scale symptom of what's happing at the national level. When folk think they can get 'free' money and not be held accountable for the crappy long term financial results, you get underfunded pensions.

Thanks clowns - I'll be better off on my own. Now, where can I go to get my 12.something percent that being ripped off from me for socialist security?

Just Saying|7.24.09 @ 2:59PM|#

"Whoever invented the defined benefit pension deserves vilification. What a risky, stupid idea."

Agreed. It's not as if they hadn't heard of the crash of 1929.

|7.24.09 @ 3:10PM|#

Not only are the unions failing in the pension department, I don't think they are that strong in the intelligence region either,

My town recently got a Texas Roadhouse. The local contractor's union decided that they had to protest it because it wasn't built with union labor (you bastards!). The thing about it though, the union didn't begin to protest until long after the restaurant was built and open for business. That's saying McCain 08 in March of 09.

|7.24.09 @ 4:11PM|#

Whoever invented the defined benefit pension deserves vilification. What a risky, stupid idea.

Agreed. The only way to secure your retirement is to do it yourself. Rely on a company or government pension fund and you are sure to get screwed over. They'll always rape the fund to pay for something more short term.

How many times does a company have to go bust and take down the pension fund with it before people get the fact that a promised benefit 30 years down the road is little better than an IOU? Take the cash now and save it yourself. They can raid a trust fund that is under company or union or government control, but they can't raid your personal bank account.

|7.24.09 @ 4:52PM|#

"qwerty | July 24, 2009, 1:53pm | #
Whoever invented the defined benefit pension deserves vilification. What a risky, stupid idea."

Qwerty, DBP plans are not a recent invention, they date from the era of the industrial revolution, specifically Bismarck's 1880s Germany, one of the first nations to offer old-age pensions and similar benefits. The systems we use in the USA are not quite that old, but are never-the-less products of that time, when life expectancies were lower, the ratio of pension payors to pension recipients more favorable, etc.

The fatal error in DBPPs is not their existence per se, but the fact that they are generally not indexed to the performance of the investments/savings underlying the funds, and that they are not self-sustaining (rely upon outside sources of funding, such as general taxpayer revenues). They are also flawed in that their retirement ages have not been raised to account for much longer life spans. There is no way these funds can stay solvent when retirees can quit as early as age 45, and being collecting a benefit right away. The minimum age benefits should begin is 65 or perhaps 68, no sooner.

One final thing: I agree with you that DBPPs are a relic of the past, whose use should be severely restricted if not abolished in most cases. One exception: veterans of military combat and/or public safety, esp. those with disabilities unable to work otherwise.

|7.24.09 @ 5:00PM|#

Rignerd, agree with your post that government DBPPs are a Ponzi scheme. Why? Because the government has sold jobs within the public sector as secure ones with a retirement plan, to counteract supposedly higher wages in the private sector (that this is often not true, is another matter); that is, work this dangerous and/or demanding soldier/cop/firefighter/teacher job, for less money now, and we'll make it up to you on the back end, when you retire. I.e. - this is yet another example of the government borrowing from its citizens, and probably stiffing them in the end when the promised pensions go broke, or cut, or decline in value due to inflation (Fed printing money to pay debt).

Funny, but have you noticed that members of the privileged class in Congress get a seperate pension system, one in which they are vested after only a few short years? Ditto their healthcare plan. What a bunch of greedy, unethical b*stards!

|7.24.09 @ 8:25PM|#

The fatal error in DBPPs is not their existence per se, but the fact that they are generally not indexed to the performance of the investments/savings underlying the funds, and that they are not self-sustaining (rely upon outside sources of funding, such as general taxpayer revenues).

But those facts are pretty much inevitable given the fact that the people managing the pensions (government, unions, company bosses), are going to be disproportionately driven by short-term interests. Whether those are personal (internal organization politics), or collective (borrow from the pension fund to pay for worker retraining).

Just like with personal savings for individuals, it is difficult for organizations to resist the temptation to "borrow from the future", by raiding retirement savings. (Social security is a perfect case of this happening.)

At least when it is in your personal control the individual has both the choice and the responsibility for what happens to his own retirement money.

When you transfer the responsibility to a collective entity such as a government or a union, then the political hierarchy governing that entity is going to manage it for the short-term benefit of the political hierarchy. You are just trading individual short-sightedness for institutional short-sightedness.

perilisk|7.24.09 @ 9:34PM|#

"Now if you were a union member paying significant dues, wouldn't you be watching such things?"

Probably not if it was just a precondition for your job. If you're required to join a HOA to purchase a house, that doesn't mean you're going to be involved in their politics.