Union Pension Fund Management Concludes Plan Is Critically Underfunded

SEIU logoAndrew Stern, president of the Service Employees International Union, often has emphasized his commitment to building a lean, efficient organization. His union and unions generally, he argues, need to aggressively cut costs and generate revenues in every way possible. Yet the SEIU is a union in major financial trouble. Its pension plan is no exception. Several weeks ago, the Washington, D.C.-based SEIU National Industry Pension Fund (NIPF) revealed in an April 30 letter to union leadership that the pension plan was in “critical status,” or the “red zone.” This “Notice of Critical Status” stated as follows: “This is to inform you that on March 31, the Plan actuary certified to the U.S. Department of the Treasury, and also to the Trustees, that the Plan is in critical status (the “red zone”) for the plan year beginning January 1, 2009. Federal law requires that you receive this notice.” 

There’s a certain irony in this. Four years ago, the Service Employees led a walkout faction from the AFL-CIO on the eve of its 50th anniversary convention in Chicago. The labor federation, charged Stern, had been focusing too much on Washington politics and not enough on organizing. What’s more, its member unions failed to look after their bottom lines. The split prompted the SEIU, the Teamsters, UNITE HERE and several other unions to form their own federation, Change to Win. Yet the Service Employees, now with more than 2 million active members, have been pouring enormous amounts of money into politics. During the four-year period leading up to the 2008 elections, the union sunk in $60.7 million to ensure their favored candidates would win. Now that Barack Obama is president and the Democrats hold wide majorities in both houses of Congress, Stern has realized a major return on his investment. But in the meantime, he has a looming crisis in his own backyard.

In its April 30 letter, the SEIU National Industry Pension Fund informed union top brass that the union pension plan is in the red zone for three reasons: 1) the sum of the Plan’s normal cost and interest on the unfunded benefits for the current Plan year exceeds the value of all expected contributions for the year; 2) the present value of vested benefits of inactive participants is greater than the present value of vested benefits of active participants; and 3) the Plan is projected to have an accumulated funding deficiency for Plan years beginning January 1, 2013. The letter noted that the Employee Retirement Income Security Act (ERISA) requires that all pension plans in critical status adopt a rehabilitation plan aimed at restoring financial health.

On the surface, the SEIU balance sheets look promising. Assets were fully 95.99 percent of liabilities, a figure well up from 74.38 percent in 2007 and 74.87 percent in 2006 (years ending December 31). But assets in these cases were based on actuarial rather than fair market values. And when measured by the latter indicator, the plan remains well underfunded. Whereas the 2007 and 2006 figures for asset fair market value were a respective $1.29 billion and $1.25 billion, in 2008 it fell to just under $900 million, a product of the stock market collapse. This is significant, argues the union’s NIPF letter, because “market values tend to show a clearer picture of a plan’s funded status as of a given point in time.” The letter noted that an ERISA-mandated financial remediation plan may include reduction or elimination of “adjustable” benefits covering such areas as early retirement, lump sum payments, and disabilities.

The Service Employees’ financial problems extend to the union general fund. In 2002, the union’s financial disclosure data submitted to the U.S. Department of Labor indicated liabilities were a mere $8 million. But that figure soared to about $120 million in 2007 and $156 million in 2008. The union’s liabilities now are more than 80 percent of its total assets of $189 million. During 2007-08, net assets fell from $64 million to $34 million. Much of this debt owes to an $80 million loan the union incurred to buy its new headquarters in Washington, D.C., a highly questionable business decision. Yet it also has a lot to do with the union’s huge political and lobbying operations. Total expenses in these areas were $67 million in 2008, more than twice the sum for 2007. And should the union pay off its real estate loan, it still must worry about the $25 million in new bank loans it took out last year, including $15 million from the UNITE HERE-affiliated Amalgamated Bank of New York.

The Service Employees International Union and its Change to Win partners often speak of the necessity of retooling organized labor as a lean, mean organizing machine, eschewing Washington politics. Yet in reality these unions are as politically-driven as any AFL-CIO affiliate. They’re finding out the hard way that most workers, left to their own devices, aren’t eager to join. That’s why Labor is going all out to persuade Congress to pass the Employee Free Choice Act and other legislation designed to boost union finances and profile. Rhetoric often takes a back seat to reality when faced with competition in the marketplace. In the meantime, the union’s active and retired members may be wondering if they will collect their full pension. (SEIU National Industry Pension Fund, 4/30/09; Wall Street Journal, 6/10/09).