Construction Unions Push PLAs to Save Underfunded Union Pension Plans

1 June 10, 2009  Uncategorized

A piece in The Washington Examiner (“Almost half of top unions have underfunded pension plans,” 6/7) reports that some major construction labor unions have underfunded pension plans.  This is relevant to the PLA debate because PLAs typically force non-union employers and their employees to contribute to union pension funds for time worked on a PLA project.

Readers may recall that I discussed the problem with forced pension contributions when I provided analysis of anti-merit shop provisions in an actual PLA (PLA Basics, 4/24).

Anti-Merit Shop Provision #5

Article 12.01.a. – The Employer shall make contributions to the established fringe benefit funds in the amounts designated in the appropriate Union agreement and its Schedule A.

Non-union contractors avoid PLA projects because contractors must pay twice the pension/retirement contributions on PLA projects: Once to a union pension plan and once to the existing company plan – typically a 401(k).  Non-union contractors typically can’t suspend and restart contributions to individual 401(k) accounts so they are forced to factor double payments into their contract bid.

Public and private construction users end up footing the bill for the unecessary and inefficient increased costs that are a direct result of this PLA provision. 

Workers lose too. Employees never see employer retirement contributions sent to union pension funds unless they decide to leave their current non-union employer and join and remain with the union until vested. 

This is another way PLAs can be an effective organizing tool to increase union membership: Non-union workers are more likely to join a union once they know they will lose employer retirement contributions to union pension plans. 

This issue raises an example of union hypocrisy in the PLA debate in addition to the bogus “PLAs protect union local workers” argument.

Unions claim they protect the welfare and retirement benefits of workers.  If that were true, why would unions implement a provision in PLAs that pilfers retirement contributions from workers unless they join a union?

It is obvious from The Washington Examiner report that construction unions need additional resources to sustain their pension plans and they need these contributions from non-union contractors because they are “free” — the pension plan does not have to factor in payouts to these contributors when calculating future liabilities.

Finally, I wrote how paying into underfunded and mismanaged union pension plans can expose merit shop contractors to pension withdrawal liabilities (PLA Basics, 4/24) which is another reason why merit shop contractors avoid bidding on PLAs.

Anti-Merit Shop Provision #6

Article 12.01.c. – When the Employer(s) contribute(s) fringe benefit payments into local, regional, or national trust funds, the Employer agrees to be bound to all lawful terms and conditions of such trust agreements, and all amendments thereto.

Depending on the financial health and rules governing a specific union’s pension plan, signing a PLA or a local union agreement could bankrupt a contractor or prohibit contractors from qualifying for construction bonds needed to build future projects because contractors are forced to calculate and carry multi-employer pension plan withdrawal liabilities on their balance sheet.

PLA Basics: Pension provisions in PLAs:

  • Hurt retirement for non-union workers. Employer retirement contributions into union pension plans on behalf of non-union workers are forfeited unless workers join a union.
  • Keep underfunded and mismanaged union pension plans afloat.
  • Expose contractors to underfunded multi-employer pension withdrawal liability.
  • Increase costs to construction users because double pension payment (one payment for the existing non-union plan that workers deserve and one for the mandated union “windfall” plan from which workers will never benefit) is factored into bids from the rare non-union contractors that do bid on a PLA project.
  • Cut competition from non-union contractors that do not want to participate in PLA plans (because of the aforementioned reasons), which reduces the number of bidders and increases construction costs.

If you want to know if your local construction union has an endangered or critical pension plan, consult the U.S. Department of Labor list published here: http://www.dol.gov/ebsa/criticalstatusnotices.html

Almost half of top unions have underfunded pension plans

By: Kevin Mooney
Examiner Investigative Reporter
06/07/09 6:41 PM EDT

Almost half of the nation’s 20 largest unions have pension funds that federal law classifies as “endangered” or in “critical” condition due to being underfunded, an Examiner review of federal actuarial reports shows.

Pensions with less than 80 percent of the assets needed to cover present and projected liabilities are considered “endangered,” while those that fall below a 65 percent threshold are classified as “critical” under the Pension Protection Act of 2006.

Unions are required to file 5500 forms that record the financial health of their retirement plans, show that union pension funds have lost their financial footing over the past several years.

Eight of the largest unions have underfunded plans, according to the most recent 5500 reports, including the Service Employees International Union (SEIU), the United Food and Commercial Workers (UFCW), the International Brotherhood of Electrical Workers, the Laborers International Union of Northern America, the International Association of Machinists, the United Brotherhood of Carpenters, the International Union of Operating Engineers, and the National Plumbers Union.

The average union pension has resources to cover only 62 percent of what is owed to participants, according to the Pension Benefit Guarantee Corporation (PBGC). Less than one in every 160 workers is covered by a union pension with required assets.  

These figures demonstrate that the liability challenge to the long term of health of union funds is systemic and across the board, said Brett McMahon, vice-president of Miller and Long, a Maryland-based concrete construction company.

Demographics figure prominently in the erosion of pension assets now that a smaller percentage of union workers are available to support an expanded group of retirees, McMahon said. Only 7.6 percent of private sector employees are members of a labor union, according to the Bureau of Labor Statistics.

The growing number of local and national union pensions that lack sufficient resources to cover their obligations could threaten the retirement security not just of union members, but also non-union employees if the proposed Employee Free Choice Act (Card Check) becomes law as currently written, McMahon said.

The Card Check legislation includes provisions both to abolish secret ballots in union representation elections in the workplace and to require a binding arbitration process that greatly favors unions, McMahon said.  

“It’s like the Social Security problem on steroids,” McMahon said. “We are talking about a systemic, demographic problem where there are too few people paying in and the plans can’t earn enough returns to make up for the difference.”

McMahon believes “union members are not being told the truth about the condition of their retirement plans. The danger to non-union workers comes in with Card Check because there is nothing in it that prohibits an arbitrator from shoving companies and workers into these underfunded plans.”

Diana Furchtgott-Roth, a senior fellow with the Hudson Institute, is encouraging EFCA critics to focus more attention on the arbitration side of the bill in addition to “card check” for this same reason.

Multi-employer pension plans that are typically negotiated by unions should be of particular concern because they have less federal insurance than single-employer pension funds, McMahon pointed out. The PBGC only guarantees $12,870 in annual payments to a member of the multi-employer plan in contrast to $54,000 for members of a single-employer plan.

If anything, the current 5500 records vastly understate the deteriorating condition of union pensions because they do not include the stock market drop from last year, James Sherk a labor expert with the Heritage Foundation points out. Reports are typically not filed for more than 12 months after the end of a plan year.  

“There are a lot of red zone notices going out now for funds that fell under the critical percentage for liabilities with the market meltdown,” he said. “This would not be evident under the most recent 5500s because they only cover through 2007.”

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One Response to Construction Unions Push PLAs to Save Underfunded Union Pension Plans

The American Spectator : AmSpecBlog : Obama Order Locking Out Non-Union Construction Companies Marks One Year Anniversary February 8, 2010 at 2:45 pm

[…] their depleted ranks and to bolster their underfunded pension plans. ABC officials have a detailed explanation of  the likely […]

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