Don't Buy Unions' Labor Day Bluster

Next Monday, Labor Day, is the occasion for labor unions to celebrate the contributions their members have made to American prosperity.

With union membership down to 8% of private-sector employees, unions are eager to sign up new members in order to swell their ranks, replenish their treasuries and infuse new contributions into union-sponsored pension plans, many of which are underfunded.

In the process of recruiting new members, some labor organizations, such as the AFL-CIO, don't mind twisting and omitting facts.

The AFL-CIO's Web site reads, "Because they have a voice at work, union workers have a ‘union advantage' in benefits and are much more likely to have pensions-and good pensions-than nonunion workers."

What the federation and some unions don't tell prospective members is that collectively-bargained pension plans generally have lower levels of funding than do plans offered by employers unilaterally for nonunion employees. This disparity is evident in the data for 2006, the latest year for which complete reporting is available. And that was before the 2008-09 stock market crash, which unions cite as a convenient excuse for underfunding.

There may be reasons for the unorganized to join a union, but retirement security should be the least of them.

Unions also don't disclose that their internal retirement plans for officers and staff are usually better funded than the plans for the rank-and-file, for which union officers are responsible. The numbers demonstrate as much.

While a pension plan need not be fully funded at any given time to be stable, the Pension Protection Act of 2006 draws a line at 80%. It considers funds with less than 80% of needed assets, as determined actuarially, to be in "endangered" status.

Among large plans-those with 100 or more employees-35% of non-union plans were fully funded in 2006, as against 17% for union plans. While 86% of non-union funds met the 80% test, only 59% of union funds did.

Similarly, while only 1% of non-union plans had less than 65% of the required assets, called "critical" status in the 2006 Act, 13% of union plans were in "critical" shape.

The problems with large collectively-bargained pension plans extend to small plans, those with fewer than 100 participants. Of non-union plans, 61% were fully funded, compared to 25% of union plans. Both union and non-union plans small plans were about as likely as their larger counterparts to have funding ratios below 80%. Fifteen percent of the small union plans were in critical condition, more than twice the ratio of small non-union plans.

Many rank-and-file plans may be in poor condition, but an analysis of 30 staff and officer pension plans in unions with some of the largest 46 rank-and-file pension plans shows that plans for some unions' own employees are doing fine. Although the rank-and-file plans had 79% of funds needed to cover their obligations, officer plans were on average 93% funded.

The failing union pension plans appear to be one reason that labor has been lobbying for the Employee Free Choice Act (EFCA). Its "card check" provision would take away workers' rights to a secret ballot vote during a union representation elections; and a requirement for binding arbitration if a newly-certified union and the employer cannot agree on a contract would force the parties to abide by a contract for two years as determined by government-appointed arbitrators.

The arbitrators would have the power to force newly-unionized firms into underfunded multi-employer pension plans. That would be an easy way to augment their coffers without putting a new burden on workers already covered.

Carl Pecoraro, president of the Teamsters Local Union 507 and chairman, Board of Trustees, Cleveland Bakers & Teamsters Health & Welfare and Pension Funds, wrote in a March 9, 2009 letter, "Especially important to me as a trustee, EFCA would strengthen defined benefit plans by fueling broad-based economic growth and increased plan participation from newly-organized union members."

If an arbitration panel were to require a company to join an underfunded multiemployer plan, the firm could become liable for pensions of workers and retirees other employers. That would be manifestly unjust, and would inflict grievous financial harm on workers in the newly organized firm, because their pensions would be at risk.

With fewer workers joining unions, the collectively-bargained multiemployer pension funds are characterized by an increasing number of retirees supported by fewer younger workers. Such plans can survive only through new contributions. This is why unions will do anything to recruit new members - including forcing workers into underfunded pension plans through mandatory arbitration.

Union leaders have contributed to this problem by negotiating for pension plans that are more generous than can be afforded, often seeking pension increases in the face of consistent employer complaints about costs. While unions have many incentives to bargain for increased benefits, they have few incentives to ensure that there will be adequate funding for the promised pensions.

At bottom, the real problem is the opacity of union pension financing and the lack of accountability required of union leaders. Union members have few assurances that the trustees of their pension funds are acting in their best interest. The continued poor status of union-run pension plans suggests that union trustees are not diligently striving to protect the stable financial futures they have advertised.

Labor Day is a time to celebrate workers - and to make sure they have the retirement security that they deserve.