Unions vs. Private Pension Plans:Unions vs. Private Pension Plans:How Secure Are Union Members’ How Secure Are Union Members’

Retirements?Retirements?

Diana Furchtgott-RothDiana Furchtgott-Roth

Senior Fellow, Hudson InstituteSenior Fellow, Hudson Institute

July 16, 2008July 16, 2008

The ProblemThe Problem

Unions’ rank-and-file pension plans are Unions’ rank-and-file pension plans are not as well-funded as private sector not as well-funded as private sector plansplans

Union staff and officer plans are well- Union staff and officer plans are well- funded relative to rank-and-file plansfunded relative to rank-and-file plans

   Unions play politics with pension fundsUnions play politics with pension funds

2

Funding of Union Pension Funding of Union Pension Plans Compared to Private Plans Compared to Private

Sector PlansSector Plans Thirty-seven Thirty-seven

percent of percent of large non-large non-union pension union pension plans are fully plans are fully funded, funded, compared with compared with 19% of union 19% of union plansplans

3

Two percent of large, non-union Two percent of large, non-union defined benefit plans are in critical defined benefit plans are in critical condition, compared with 11% of condition, compared with 11% of union plans.union plans. 4

Thirty-three percent of non-union plans Thirty-three percent of non-union plans in critical condition paid at least their in critical condition paid at least their minimum annual charges in 2005, minimum annual charges in 2005, compared with only 8% of union plans.compared with only 8% of union plans.

5

In 2005, 17% of non-union plans In 2005, 17% of non-union plans made additional contributions due to made additional contributions due to funding deficiency, compared with funding deficiency, compared with 30% of collectively-bargained plans.30% of collectively-bargained plans.

6

The average annual payment to correct The average annual payment to correct a funding deficiency is higher for a funding deficiency is higher for collectively-bargained plans ($2.9 collectively-bargained plans ($2.9 million) than for non-union plans ($2.3 million) than for non-union plans ($2.3 million).million).

7

Why Are Pension Plans Why Are Pension Plans Poorly- Funded?Poorly- Funded?

Poorly-funded plans Poorly-funded plans Rely on past assets, or credits, to reduce Rely on past assets, or credits, to reduce

payments;payments; Fall behind on payments; Fall behind on payments; Pay penalties and extra fees; Pay penalties and extra fees; Are unable to adjust contributions every Are unable to adjust contributions every

yearyear Don’t put enough into pension funds.Don’t put enough into pension funds.

8

Union Officer and Staff Plans Union Officer and Staff Plans Do Better than Rank-and-File Do Better than Rank-and-File

PlansPlans The 21 largest pension plans for The 21 largest pension plans for

rank-and file union members had rank-and file union members had 67.7% of funds needed to meet 67.7% of funds needed to meet obligations.obligations.

The 23 officer and staff funds for the The 23 officer and staff funds for the same unions were 88% funded. same unions were 88% funded. 

Excluding the 7 staff and officer Excluding the 7 staff and officer funds strictly for office employees, funds strictly for office employees, the remaining 16 were 98% funded.the remaining 16 were 98% funded.

9

The SEIU Pension Plan Ratios, The SEIU Pension Plan Ratios, 20062006

SEIU National Pension Plan (rank-and-SEIU National Pension Plan (rank-and-file): 100,787 Workers, 75% Fundedfile): 100,787 Workers, 75% Funded

SEIU Employee Plan:SEIU Employee Plan:

1,305 Participants, 91% Funded1,305 Participants, 91% Funded

   SEIU Officers and Employees Plan:SEIU Officers and Employees Plan:

6,595 Participants: 103% Funded6,595 Participants: 103% Funded10

Thirteen SEIU local pension plans less than Thirteen SEIU local pension plans less than 80% funded 80% funded 

Massachusetts Service Employees Pension Massachusetts Service Employees Pension Plan fell from 110% to 70% funded in 10 yearsPlan fell from 110% to 70% funded in 10 years

11

The Sheet Metal Workers The Sheet Metal Workers International AssociationInternational Association

In 2006, TheIn 2006, The Sheet Metal Workers National Sheet Metal Workers National Pension Fund plan covered 136,000 people.Pension Fund plan covered 136,000 people.

It had guaranteed $7.45 billion in benefits, It had guaranteed $7.45 billion in benefits, but only had assets of $3.1 billion ($22,879 but only had assets of $3.1 billion ($22,879 per person)—a deficit of $4.35 billionper person)—a deficit of $4.35 billion

Benefits were increased after the creation of Benefits were increased after the creation of the fundthe fund

12

The SMWIA National Pension fund was The SMWIA National Pension fund was 43% funded in 2006 ($22,879 per person)43% funded in 2006 ($22,879 per person)

The SMWIA Staff Pension Plan was 81% The SMWIA Staff Pension Plan was 81% funded ($230,848 per person).funded ($230,848 per person).

As rank-and-file members had their COLA benefits cut, the union staff's COLA fund more than tripled Union contributions entirely paid for the Union contributions entirely paid for the

increase, with nothing from staff salaryincrease, with nothing from staff salary

President Michael Sullivan received President Michael Sullivan received $133,198 in benefit plan contributions in $133,198 in benefit plan contributions in 2006.2006.

Playing Politics with Playing Politics with Worker’s Pension FundsWorker’s Pension Funds

Definition of “fiduciary duty” changed Definition of “fiduciary duty” changed in 1990s when unions were allowed to in 1990s when unions were allowed to consider effect of investments on consider effect of investments on communities and environment.communities and environment.

Unions opposed Social Security Unions opposed Social Security personal accounts personal accounts 

Unions threatened pension fund Unions threatened pension fund managers over Social Security managers over Social Security accounts.accounts.

14

Union Pension Funds Used Union Pension Funds Used to Influence Corporate to Influence Corporate

DecisionsDecisionsResolutions to split CEO and board Resolutions to split CEO and board

chairmanchairman Teamsters at Merrill Lynch, Coca ColaTeamsters at Merrill Lynch, Coca Cola Bricklayers at WalmartBricklayers at Walmart Electrical Workers at Kohl’sElectrical Workers at Kohl’s Plumbers at AllerganPlumbers at Allergan

15