The Hidden Agenda Behind Card Check

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Organized labor has finally found a way to replenish the coffers of its underfunded pension plans. The key is mandatory binding arbitration between newly-formed unions and employers, one of the main provisions of the misnamed Employee Free Choice Act.

EFCA, introduced in the House and Senate on March 10 and now under consideration in committee, passed the House of Representatives in 2007. It has run into opposition from Democrats such as California Senator Dianne Feinstein because of its attempt to eliminate secret ballots for union elections. Supporters are crafting a compromise bill that would keep the secret ballot, yet would impose binding arbitration on employers and workers who could not agree on a contract.

Under binding arbitration, if firms and newly-organized unions cannot agree on their first collective bargaining contract within 120 days, the Federal Mediation and Conciliation Service, a government agency headed by a political appointee, would set up arbitration panels to craft two-year contracts. Neither the union nor the employer would have an opportunity to choose any members of the panel, and the Mediation Service would write the regulations.

Unions want mandatory arbitration because they believe the threat of arbitration, followed by arbitration itself, will force employers to pay better compensation packages. That will help them recruit more members, providing a fresh infusion of funds for daily operations as well as for failing pension plans.

On May 11 a group of union pension fund investors, including representatives of the AFL-CIO and the Service Employees International Union pension plans, endorsed EFCA in a letter to Iowa Democrat Senator Tom Harkin, cosponsor of the Employee Free Choice Act, and Chairman George Miller of the House Education and Labor Committee. “As fiduciaries with broadly-diversified portfolios,” the signatories wrote, “we must be cognizant of these trends and their impact on our investments.”

Failing pension plans are a major problem for unions. Unions create these multiemployer, collectively-bargained plans in order to provide retirement income for workers in several different places of employment. This requires the union, the sponsor of the plan, to negotiate with each employer to join and contribute to the fund.

The health of pension funds can be compared by looking at reports that plans are required to file with the Labor Department. Union plans are in worse shape that non-bargained plans. In 2005, 87 percent of large non-bargained pensions had at least 80 percent of the money they needed to pay all liabilities. In contrast, only 61 percent of the collectively-bargained pension plans were at least 80 percent funded.

In 2006 the SEIU National Industry Pension Plan, covering 100,787 workers, had only three-fourths of the money it needed to pay benefit obligations of workers and retirees. And the Sheet Metal Workers National Pension Fund, although it guaranteed $7.4 billion in benefits to active and former workers, had accumulated only $3.1 billion is assets—less than 42 percent of the amount required to make good its guarantees.

Although pension plans have not filed their 2008 reports, the decline in the stock market over the past two years has undoubtedly made the financial positions of all pension funds, including collectively-bargained pensions, far worse.

The Pension Protection Fund of 2006 requires pension funds to meet certain actuarial standards, either by increasing contributions or by reducing payouts to existing and future retirees. Both options would be unpopular with members. What are unions to do?

Mandatory arbitration provides a solution by requiring an arbitration board to set compensation packages, including possible enrollment in collectively-bargained pension plans.

If the arbitration panel were to require a firm to join one of the many underfunded plans, the firm could well become liable for the pensions of workers, some already retired, of other firms. This would generate an inflow of new cash to the plan but harm the financial position of the firm. According to Brett McMahon, vice president of the construction company Miller and Long, “Strengthening underfunded plans is an unstated union motive for seeking mandatory arbitration.”

Under EFCA, if a trucking company were unionized by the Teamsters and could not reach an agreement with the union, the case would go to mandatory arbitration. Arbitrators could require the company to participate in a Teamsters pension fund, such as the Central States Pension Fund, which was 64 percent funded in 2006. This pension fund is used by United Parcel Service and other trucking companies.

Under a multiemployer pension fund such as the Central States fund, if some contributors go out of business then others have to pay the obligations. This concept is known as “last man standing.” Only if all the companies go out of business does the Pension Benefit Guarantee Corporation, a government pension insurance fund, reimburse workers a maximum currently set at $12,820.

With fewer workers joining unions, the collectively-bargained multiemployer pension funds are characterized by an increasing number of retirees supported by fewer younger workers. Many systems are typical Ponzi schemes, with new contributions paid out in benefits rather than being saved for contributors’ retirement.

Union pension funds can only survive through new contributions. That’s why unions will do anything to raise participant levels—including taking away secret ballots and forcing workers into underfunded pension plans.

America’s workers should not have to give up secure retirements in the name of a compromise on the Employee Free Choice Act. Just as workers deserve secret ballots in union elections, they also deserve the right to consider judiciously their labor contracts, and walk away from those that they deem unfair.

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