Saturday, February 12, 2011

The Trouble With Pensions....

The League of Ordinary Gentlemen has had, in recent weeks, a number of thought-provoking posts on unions. If you're looking for something to agree with or to disagree with, if you review the posts odds are you'll find the opportunity to do both. (See, for example, "Public sector unions bad, private sector unions sort of good.")

E.D. Kain asks, in the context of the debate over pensions, whether the focus should be less on the idea that union members get too much and more on whether the real issue is that non-unionized workers are underpaid.
Nobody but public sector employees receive pensions anymore. And maybe this is an argument to move back to the pension model rather than an argument to get rid of public pensions. Maybe leveling the playing field is the right idea, but we should level it up rather than level it down.
I personally wouldn't mind having a pension (or more than one, if I could swing it) instead of being responsible for my own retirement. And yes, there are careers in the public sector for which workers of a certain age become less suited to the job. There's also an argument I've heard made that with the rate of job turnover, some government units can save money by having a defined benefit plan - provided it takes five or more years to vest. But....

In the argument about the negative side of public sector unions, Kain adopts the position that union members could collaborate to have union-friendly people elected to office and that those people might participate or influence future union negotiations. Not necessary. When managers negotiate union contracts, whether in the public or private sector, they almost inevitably give themselves equal or greater benefits. It's not fair, after all, if the union members get three days of bereavement leave and managers only get two - managers should have five. And it's not fair that a union member might be able to retire in twenty years with a vested pension unless....

I disagree with the idea that similar things don't happen in the private sector, although I'll concede that it's easier for private companies to avoid unionization, avoid their union contracts through bankruptcy, and that the directive is likely to come down from on high that concessions to unions aren't to affect the value of management's stock options. If you think that UAW workers were overpaid prior to the GM bankruptcy, did you happen to notice executive compensation and perks? Did you happen to notice that the government bent over backwards to keep the financial industry and AIG out of bankruptcy, with full, excessive compensation delivered out of taxpayer pockets and into those of the people who broke the financial system? It's not as if management suffers - just like public sector managers, the managers of publicly traded companies are happily spending other people's money, and are much more free to lavish it upon themselves.

Also, while vesting periods can potentially save money at one end (at the expense of a shorter-term worker) they cost money at the other end - people who stay a few years longer than they should in order to get their 'full' pension, or who get a last-minute promotion that significantly raises their retirement benefit. And the nightmares that can result when there's an attempt to reduce the workforce, with buyout packages, early awards of pension benefits, etc. - often with parity requirements such that you have to offer the same opportunity for a buyout or 'early retirement' to the people in other departments.

So, pensions? No, I would switch over to a defined contribution plan. The union can negotiate for a greater matching contribution. There's no future liability to government. Workers know exactly how much they have in their retirement accounts. Management services can be offered through companies with strong track records, such as TIAA/CREF. And no, people aren't as happy as they would be if they retired with a generous pension, but on the whole we'll be better off.

Addendum: I would do something similar with retiree health benefits. Perhaps the employer and union could negotiate for an annual contribution by the employer to retiree benefits, which would then be transferred to, held in trust and managed by the union.


  1. You might be better off doing away with traditional management services all together and going with something similar to the Federal TSP program.


  2. Of course there's a big steaming pile of classism involved. But there's also the problem of people not getting just how regressive employment law is in the US; I'm sure you've had people ask you about suing their employers because they've been fired for "unfair" reasons. Unions, for good or ill, are much more about negotiating power and job security than wages.