May 08, 2012 - 1:31pm

New Report Finds $369 Billion Hole in Union Pension Plans


Senior Vice President, Employment Policy Division

5/8/2012

One of the benefits of union membership has traditionally been the promise of a secure pension.  However, a report last month by Credit Suisse suggests that this promise may be increasingly hard to keep. 

Credit Suisse reported that “the hole in the pension plans of U.S. labor unions now stands at $369 billion.”  The bank calculated that this translates into an overall funding ratio of just 52 percent.  In its most recent report on the health of union multi-employer pension plans, the Pension Benefit Guarantee Corporation (PBGC) estimated an even lower funding ratio:  just 48 percent.

To make up for the funding shortfalls, there are typically two remedies:  increased contributions from employers and/or reducing benefits for retirees.  Unfortunately for some plans, as the PBGC points out, that may not do the trick:

“For decades, multiemployer plans were in relatively good health, even in the face of industry decline. Unfortunately, for many multiemployer plans, that is no longer true. Many are substantially underfunded; for some, the traditional remedies of increasing funding or reducing future benefit accruals won’t be enough.”

Just what additional remedies the PBGC has in mind are unclear.  What is clear is the challenge this poses for today’s unions.  Not only are they losing market share as a percentage of the workforce (down to just 6.9 percent of private sector workers), but the woes facing their pension plans in turn make it that much more difficult to recruit new members.  

This fact was one of the unstated reasons behind the unions’ push for the now-dead Employee Free Choice Act.  Under that bill’s mandatory arbitration provisions, employers could have been forced to participate in union multi-employer plans, thus bringing in fresh revenues.  This same logic is no doubt playing a role in the flurry of pro-union regulatory activity by the National Labor Relations Board and the Department of Labor.

An additional avenue pursued by the unions over the past decade is utilizing the remaining assets in pension plans to engage in shareholder activism, allegedly in an attempt to improve corporate performance.  Unfortunately, as a report by the U.S. Chamber has documented, this has resulted in no measurable benefit for pension plan participants. 

Creative solutions will be needed to solve the decline of multi-employer pension plans.  As the Credit Suisse report makes clear, unions haven’t found them yet. 
 

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About the Author

Glenn Spencer Headshot
Senior Vice President, Employment Policy Division

Glenn Spencer is senior vice president of the Employment Policy division at the U.S. Chamber of Commerce.