Useless Unions

According to a recent ad campaign sponsored by American Rights at Work, the Employee Free Choice Act (EFCA) is all about “letting workers choose to join a union to earn better pay and benefits.” Yet Diana Furchtgott-Roth and Andrew Brown of the Hudson Institute disagree, referring to the “sorry state of unions” as a reason the organizations are embracing EFCA, which is currently pending in Congress.

Their September 2009 study, Comparing Union-Sponsored and Private Pension Plans: How Safe Are Workers’ Retirements? states that “many of the major national unions advertise that union members are more likely to have better retirement plans, explicitly defined-benefit retirement plans, than workers without a union.” Yet Furchtgott-Roth and Brown pointed out that “this promise would be far less persuasive were potential union members to understand that a pension is not guaranteed just because it has been created.”

Though unions promise grand benefits for members, the study found that many do not have sufficient provisions to fund those retirement benefits. 2006 data from the U.S. Department of Labor shows that non-union plans had funding covered for 97% of liabilities for large union plans, while collectively-bargained plans had only 86% covered.

In addition to poor performance, the study found two major problems with union plans that hinted of corruption: better-performing staff and officer plans and shady political spending.

In comparing rank-and-file union plans to those of the staff and officers, the study found that staff and officers usually do not have collectively-bargained plans; rather their plans are “dictated by the union’s bylaws.” Correspondingly, while the rank-and-file plans looked at had 79% of the funds needed to fully pay for workers’ pensions, the sample of officer plans were 93% funded. Furchtgott-Roth and Brown concluded that “if unions wish to encourage managers to work in the best interests of their companies… perhaps the unions ought to set the example first.”

Union political spending must come from voluntary contributions, not from member dues, but this study showed how unions find ways to skirt that legal requirement. Of the $130 million unions contributed to campaigns, the Service Employees International Union (SEIU) contributed the most—close to $28 million. Under the SEIU, reported Furchtgott-Roth and Brown, “local unions come under pressure to mobilize voluntary contributions of at least $6 a year from each member.”

The SEIU gave ACORN over $4 million in 2006-07, wrote National Public Radio’s Will Evans last year. SEIU Local 100 was founded by ACORN co-founder Wade Rathke.

Furchtgott-Roth and Brown hypothesized a couple of reasons why underfunding is systemic among union plans. They said that “confronting underfunding is a headache for union leaders and the path of least resistance is to avoid such engagement” and “employers may be more disposed to grant pension benefit increases than wage increases because the former are largely future costs.”

A significant section of the study distinguished between the two types of pension plans: defined benefit and defined contribution. Defined-benefit pension plans characterize the bulk of union pension plans, whereas defined-contribution pension plans are more typical for non-unions. Furchtgott-Roth and Brown described defined-benefit pension plans as promising “a specific monthly stipend for a retiree’s lifetime.” These plans are becoming less popular. The study showed that in 1976 these plans accounted for one-third of all pension plans in the U.S., but dropped to a mere seven percent in 2006.

Meanwhile defined-contribution plans, where an investment account is set up for each worker, have become increasingly popular. Furchtgott-Roth and Brown pointed out that employees prefer these plans, typically a 401(k), because the have more control over their money and can take those investments with them when they move on to a different job. The study indicates that workers are more likely to ensure a secure retirement fund through single-employer defined-contribution plans, not through the collectively-bargained defined-benefit plan preferred by unions.

Yet union membership is down and so, the study claims, “unions are doing their best to recruit new members,” adding that “with fewer workers joining unions, the collectively-bargained multi-employer pension funds are characterized by an increasing number of retirees supported by fewer younger workers.” Union recruits beware: your money might be bolstering the failed pension funds of older workers rather than securing your own financial future.

Sarah Carlsruh is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.