New Hudson Institute Report Finds Union Pension Plans Perform Worse Than Non-Union Plans

WASHINGTON – Hudson Institute released a new report today finding that collectively bargained union pension plans perform poorly when compared to plans sponsored by single employers for non-union employees.  The report shows that union leaders have contributed to underfunded pension plans 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.

The report, "Comparing Union-Sponsored and Private Pension Plans: How Safe are Workers' Retirements?" was produced by Diana Furchtgott-Roth, Senior Fellow and Director of Hudson Institute's Center for Employment Policy, and Andrew Brown, an independent economist.

"Our report reveals why organized labor is so eager to gain new members through proposed legislation like the Employee Free Choice Act – they need to help bankroll these failing pension plans with new dues-paying members," said Ms. Furchtgott-Roth.

"With the current low levels of union membership, unions are doing their best to recruit new members.  The advertised benefits of joining a union sound appealing, but there is a widespread pattern of poor performance among collectively-bargained benefit pension plans that everyone should know about."

"The problem is that there is a lack of accountability required of union leaders and no clear union pension financing rules.  Our report shows that union members have few assurances that the trustees of their pension funds are acting in their best interest.  Given the continued poor status of union-run pension plans, it can be said that the union trustees are not adequately working to ensure that rank-and-file members have the stable financial futures they deserve," Ms. Furchtgott-Roth concluded.

This report illuminates the causes of the underlying problem of underfunding. The study goes on to analyze the general health of pension plans in the United States and, in particular, documents eight case histories that illustrate issues in pension funding.  It also examines the role political interests may play in union membership and pension funding, and analyzes the link between legislation now pending in Congress, the Employee Free Choice Act, and underfunding of pensions. The report presents evidence of the disparity between union and non-union pension plans, and calls on union members to recognize their leaders' responsibility to close that gap.

Major Findings

1. The most recent data available show that union-negotiated pension plans fare consistently worse than their non-union counterparts.

• Among large plans – plans with 100 or more participants – 35% of non-union plans were fully funded, as compared to 17% of fully funded union plans.  (While a pension plan need not necessarily be fully funded at any given time to be stable, the Pension Protection Act of 2006 considers funds with less than 80% of their needed assets to be in "endangered" status.)
• While 86% of non-union funds had 80% or more funds needed to pay expected costs, only 59% of union funds met the funding threshold.
• Similarly, while only 1% of non-union plans had less than 65% of required assets, also called "critical" status in the 2006 Act, 13% of union plans were critical.
• The problems with collectively bargained pension plans extend even to smaller plans.  Of non-union plans, 61% were fully funded, compared to 25% of union plans.
• Both union and non-union 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.

2. Officer pension plans are often better funded than those for rank-and-file union members.

• The analysis reviewed 30 staff and officer pension plans relating to some of the largest 46 rank-and-file pension plans. 
• On average, the rank-and-file pension plans had 79% of funds needed to cover their obligations.  Nine of the rank-and-file pensions were fully funded, while 24 were less than 80% funded.
• Officer plans were 93% funded on average.  While nine of the pensions were fully funded, eight were less than 80% funded.

3. Rather than negotiating better-funded pensions, unions spend money on politics.

• Labor unions have contributed more than $130 million to the 2008 Senate, House and presidential election cycles.
• This influence includes PACs, advertising for union member candidates, and forming "527" groups which allow them to donate but not support a specific candidate.
• This policy, however, highlights the biggest problem with respect to union political spending.  Such spending, by law, is supposed to come from voluntary contributions, not the dues that members are required to pay.

4. The failing union pension plans are one reason that union officials are promoting the Employee Free Choice Act (EFCA).

• The "card check" provision would take away workers' rights to a secret ballot vote during a union election, and the binding arbitration provision would force employees and employers to abide by a contract for two years as determined by a government arbitrator.
• The arbitrators would have the power to force newly-unionized firms into underfunded pension plans, allowing organized labor to replenish their coffers.
• If an arbitration panel were to require a company to join an underfunded plan, the firm could become liable for the pensions of workers, some already retired, of other employers.  This would generate an inflow of new cash to the plan but might harm the financial position of the newly organized firm.
• With fewer workers joining unions, the collectively-bargained multiemployer pension funds are characterized by an increasing number of retirees supported by fewer younger workers.  Union pension funds can only survive through new contributions.  This is why union members will do anything to recruit new members – including forcing workers into underfunded pension plans through mandatory arbitration.

The full report can be found here.

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Hudson Institute is a 501(c)(3) nonpartisan policy research organization dedicated to innovative research and analysis that promotes global security, prosperity, and freedom.

CONTACT: James Bologna, 202-974-6456, jbologna@hudson.org, or Ioannis Saratsis, 202-974-2403, isaratsis@hudson.org.