Protected employee pensions?
Worker's Bill of Rights needed

Barbara A. Bullock, president of the Washington (D.C.) Teachers' Union (an affiliate of the American Federation of Teachers), was recently accused with other high-ranking union executives of bilking union members out several million dollars in dues.

According to newspaper accounts, the FBI raided the homes of Ms. Bullock and other union officials to seize items likely purchased with mandatory dues. Among the items seized were a $20,000 fur coat, shoes worth $11,000, and a sterling silver tea set valued at over $57,000.

Unfortunately, while the details of this union fraud case are more shocking than most, it is not isolated and it clearly shows the need for a strong "Worker's Bill of Rights" to protect employees. The U.S. Department of Labor recently reported that "investigations of union financial fraud result in an average of 11 criminal convictions a month, with a total of more than 640 convictions during the last five years."

Problems with financial fraud have prompted the DOL to develop stricter reporting requirements for large labor unions so members can more easily find out how their money is being spent. But it isn't just member dues being wrongly spent—employee pensions have been preyed upon as well. The DOL reports that some pension administrators abuse their position by "either using the money for corporate purposes or holding on to the money too long." Indeed, Ms. Bullock's shopping spree with her colleagues nearly drained a union staff pension fund.

But perhaps even more serious than cases of fraud and mismanagement is the way some employees are being deprived of their pension funds through legal means. Many unions require members or their employers to contribute to union pension and medical plans in addition to their regular dues, but workers have no guarantee they will ever see their money returned.

Unions are required to vest pension plans for employees after a set period. For many employees in prevailing wage unions the vesting conditions are 1,700 hours of work per year for five years. If for any reason a worker is laid off, leaves the job, or dies before the five-year vesting period ends, he and his family receive zero pension dollars. This is a particular problem for young workers (age 25-34), who spend an average of only 2.7 years working for one contractor.

The Harborview Medical Center upgrade may be a good example of how unions take advantage of pension funds. King County contracted for exclusively union labor, but the project is scheduled to be completed before the five-year vesting period ends, so millions of dollars in pension contributions will accumulate and stay in the fund while workers move on. In other words, the unvested pension money eventually ends up in the pockets of union officials.

What do unions do with the money? Most pension fund administrators claim the money is placed back into the pension pool for use by other vested workers. While this may be true in many cases, there are no regulations to prohibit union officials from withdrawing or investing the money for legal, political and financial gain.

The amount union officials collect in unvested pension funds varies, but can be in the billions. Consider the Alaskan Pipeline project in the 1980s. Many workers were laid off before their pensions were vested, but not before nearly $3 billion had accumulated in the trust managed by the Laborers International Union of North America (LIUNA). Unvested workers represented by two Seattle law firms sued the pension administrator and eventually settled out of court in 1998 for $12 million.

This wasn't the first time LIUNA officials met with trouble for misuse of employee benefit plans. In 1987, four Chicago officials were convicted of attempting to funnel $2 million from the union's dental and eye care plan. Around that same time, former LIUNA official Wendell Cage was convicted of embezzling half a million dollars in union benefits funds by issuing fraudulent checks.

The United Association (UA) fund, managed by the Plumbers and Pipefitters National Pension Fund, came under fire last year when officials pulled $800 million out to invest in a rundown hotel on the south coast of Florida. The UA has also been in trouble in the past.

Workers should not be subject to this kind of exploitation. We recommend that:

• Legislators develop a "Worker's Bill of Rights" to specify what unions can and can't do when it comes to worker representation.

• The Department of Labor prohibit the use of pension funds for non-pension purposes and establish meaningful oversight.

• Workers be allowed to take every cent of their pension contributions when they leave a job.

• Washington follow the lead of former Michigan Governor John Engler, who signed a bill that vests public union employees at 50 percent in two years, 75 percent in three years, and 100 in four years.

• Workers be allowed a choice about union membership.

Sadly, these steps are necessary to protect workers from the very organizations and individuals who claim to be acting on their behalf. While there will always be individuals willing to exploit others for their own gain, allowing workers the tools they need for true accountability will go far to end the practice.

Prepared by EFF staff (360) 956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org