Nonunion workers and private companies could be forced into absorbing the financial liabilities of underfunded union pension plans, thanks to pending health care mandates and an executive order that could be finalized this year, policy analysts and trade group representatives have concluded.

Even as unions continue to market themselves to new members on the basis of generous pension programs, government figures show these plans are performing poorly in comparison with retirement packages that operate beyond the orbit of organized labor.

In addition, unions are pushing the Obama administration on project labor agreements (PLAs), which, among other things, will give their pension plans new sources of outside funding – nonunion workers on government contracts worth more than $25 million.

Here is what the article says about PLAs.

Next up after health care could be final approval of an executive order that calls for multi-employer, multi-union PLAs to be used when federal construction projects exceed $25 million. PLAs stipulate that projects be awarded to contractors and subcontractors who agree to recognize unions as representing their employees during that particular job.

Although nonunion contractors are permitted to bid on PLA projects, the reality is that the projects are awarded almost exclusively to unionized contractors, critics point out. Only 15.6 percent of the nation’s private construction work force is unionized, Labor Department statistics show. This means PLAs could be used to discriminate against the more than eight out of 10 construction workers who are not part of a union.

Moreover, PLAs typically require contractors to participate in multi-employer union pension plans. This arrangement puts nonunion contractors at a financial disadvantage because they must pay for the union plan and for their existing company plan, the Associated Builders and Contractors points out in its analysis of the Obama order.

Individual workers also could lose out because they must surrender their nonunion plans and become vested with the union before receiving any benefits, the Associated Builders and Contractors argues.

Another disadvantage to private companies concerns the “withdrawal liabilities” they may be forced to cover as pensions erode, John R. McGowan, an accounting professor with St. Louis University, has warned in a study that examines the impact of PLAs.

Employers that are tied in with collectively bargained agreements are obligated to cover costs for underfunded union pensions when other contractors drop out, according to the study.

Tommy Vietor, the assistant White House press secretary who handles labor issues, did not respond to requests for comment on the PLA issue and the status of Mr. Becker.

The Federal Acquisition Regulation Council has not issued a final ruling on the PLA order, which may account for why it has received scant attention. The council is responsible for issuing rules that officially enshrine executive orders into the federal procurement process. The public comment period for the PLA rule was closed Sept. 24.

Meanwhile, the General Services Administration has listed 10 projects across the country that could be eligible for PLAs, including three in Washington, D.C.

“We are collectively amazed that there has been no movement on this rule yet,” said Brett McMahon, an Associated Builders and Contractors representative who is also vice president of Miller & Long, a Maryland-based concrete construction company. “But because the executive order was crafted so poorly, it has raised a lot of legal questions.”

Read the entire article here.

The Hudson Institute study by Diana Furchtgott-Roth and economist Andrew Brown,“Comparing Union-Sponsored and Private Pension Plans,” is helpful in understanding the connection between the health of union pension plans and various handouts policies Big Labor is pushing in Washington, D.C. that are also a solution to their pension and declining membership problems.

“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.

What are your thoughts on Big Labor’s manipulation of the government to pass laws and rules that increase union membership and bailout union pension plans?

An interesting article courtesy of Chang Ruthenberg and Long Employee Benefit Attorneys warns employers about the problems of contributing to multiemployer pension plans (“Cautions To Employers Considering A Multiemployer Plan“).

Withdrawal Liability!
The defined benefit plan may present another unanticipated disadvantage – withdrawal liability. A sponsoring employer that partially or fully withdraws from a multiemployer defined benefit plan may be hit with an accelerated obligation to fully fund the benefits accrued under the plan by its employees, resulting in a much larger than normal contribution to the plan for a period of years after withdrawing from the plan.

 Future benefits under a multiemployer defined benefit plan are not fully funded as they accrue but are funded by future contributions and trust fund earnings. If the benefits accrued by the employer’s employees are not fully funded when a sponsoring employer withdraws, the employer’s obligation to fully fund benefits is accelerated.

Withdrawal liability may be triggered, not only by the employer’s decision to withdraw from the plan or to terminate the collective bargaining agreement, but also by events beyond the employer’s control: a vote by employees to leave the union, a decline of business and lay-off of union employees, closure of the business, a sale of the business, or a merger. Any total cessation of the obligation to contribute will result in an assessment of withdrawal liability. Thus, any merger, acquisition, or sale of a business must be carefully structured to avoid incurring withdrawal liability. Partial withdrawal liability will also be assessed whenever the employer’s level of annual contributions substantially declines. Thus, any plan to avoid withdrawal liability by gradually reducing the contribution obligation over a series of years must be carefully managed to avoid triggering partial withdrawal liability.

The article concludes with sound legal advice. Government officials considering PLAs should investigate or require disclosure about the health of pension plans before requiring bidders to comply with multiemployer pension plan mandates typical in most PLAs:

The small employer should be cautious about signing a multiemployer collective bargaining agreement. The employer should carefully examine the current funding status of the multiemployer plans, the economic prospects for itself and the other participating employers, and whether the gains from participation outweigh the risks and loss of control of benefits and funding that will follow. If the employer finds itself stuck in a cluster of multiemployer plans from which it would like to withdraw, it should consult legal counsel to weigh the options for doing so.

• 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.

More entities are starting to understand the problem with union pension plans.  The Right to Work Blog posted about PLAs and union pensions yesterday.

The Washington Examiner (“Union officer pension plans remain flush as rank-and-file retirement plans deteriorate,” 6/9) reported that pension plans:

…for union officers remain healthy and well-funded even as rising liabilities threaten to consume the savings of their rank and file counterparts who participate in different funds within the same labor organization, according to a Hudson Institute study. 

And now The Wall Street Journal reports that union financial problems are not limited to union pension plans (“Unions in Debt,” 6/11):

Alarm is coming even from inside the AFL-CIO — specifically, from Tom Buffenbarger, president of the International Association of Machinists and Aerospace Workers, who sits on the AFL-CIO’s finance committee. Bloomberg News reports that he is circulating a report claiming the AFL-CIO engaged in “creative accounting” to conceal financial difficulties heading into last year’s Presidential election. As recently as 2000, the union consortium of 8.5 million members had a $45 million surplus. By June of last year it had $90.6 million in liabilities, or $2.3 million more than its $88.3 million in assets. “If we are not careful, insolvency may be right around the corner,” Mr. Buffenbarger warned.

Evidence suggests that union pensions and overall union finances are in shambles, so why would construction workers and their employers want to board a ship already taking on water via a PLA?

Isn’t it irresponsible of the government to promote PLAs on federal projects over $25 million as PLAs funnel construction workers into insolvent union pension plans? When will the government wake up and realize these sweetheart deals harm the retirement prospects of workers?

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.”