ERISA failures and the erosion of workers' rights: the urgent need to protect private & public workers' pensions and benefits.

AuthorAllen, James P., Jr.
PositionProtecting Workers' Rights in a Post-Wisconsin World: Strategies for Organizing and Action in an Era of Diminished Resources and Embattled Unions

ABSTRACT

On March 11, 2011, Governor Scott Walker of Wisconsin signed into law a bill that eliminated most collective bargaining rights for the state's public-sector workers. Many other cash-strapped states followed Wisconsin's lead and introduced or enacted similar restraints on the rights of their workers. Thousands of public workers, whose only means of protecting their rights rested in their ability to collectively bargain, suddenly found their retirement benefits in jeopardy. This truth highlighted the lack of protections for public worker benefits similar to those of the private sector. However, the Employee Retirement Income Security Act, enacted for that purpose, has failed to secure these benefits. This article seeks to provide a broad overview of the crisis facing the pension and benefits system in the United States and offers some possible solutions. More importantly, the goal is to spur discourse on the urgent need to protect the benefits of all workers, public and private.

ARTICLE CONTENTS I. INTRODUCTION II. BACKGROUND: THE STATE OF AMERICA'S PENSION SYSTEMS AND HOW THEY GOT THERE III. REGULATION OF DEFINED BENEFIT PLANS AND WELFARE BENEFIT PLANS A. ERISA: Regulation of Private Pensions and Benefits 1. Overview of ERISA's Regulatory Scheme 2. Pension Benefit Guaranty Corporation 3. Pension Protection Act of 2006 B. Government Accounting Standards Board IV. WEAKNESSES IN REGULATION A. State and Local Government Accountability to Public Sector Workers B. Department of Labor Enforcement of ERISA 1. Civil Enforcement as Means of Achieving the Purpose of the Act 2. Lessons Not Learned: Loopholes and Excuses Continue to Threaten Systems Already Facing Economic Pressures a. Airlines b. UAW VEBA Trust V. RECOMMENDATIONS A. Strict Unwavering Adherence to the Funding Reforms of the PPA B. Provide Federal Protections to Public Sector Retirement Benefits C. Pension and Health Benefit Plans of Retirees Should be Given Secured Creditor Status Under the Bankruptcy Code VI. CONCLUSION I. INTRODUCTION

Through the years, many workers have considered public-sector jobs, accompanied by the axioms of great pay, job-security, excellent health insurance, and generous retirement and other benefits, the most desirable and stable of employments. On March 11, 2011, a stroke of a pen forever removed these axioms from the public-sector employment universe. (1) That date marks the day that Wisconsin Governor Scott Walker signed into law sweeping legislation eliminating most collective bargaining rights for the state's public-sector workers. (2) On June 14, 2011, the Wisconsin Supreme Court upheld the constitutionality of the legislation, which was challenged on procedural grounds. (3)

Following Wisconsin's lead, other cash-strapped states began looking to balance ailing state budgets on the backs of their public workers. (4) At the time of this writing, twelve states had enacted or introduced legislation curbing the rights of their public workers to collectively bargain. (5) Virginia and North Carolina do not allow collective bargaining by public-sector unions. (6) The dangers inherent in this movement are grave. If recent lessons from the private sector hold true, public retirement benefits will be among the most vulnerable to attack as governments search for cost savings. (7) Unionized workers, in pursuit of self-preservation, often feel compelled to acquiesce to employer demands targeting reductions of legacy costs. (8) Employers pressure union leadership for concessions on retirement benefits in exchange for maintenance of benefits for the current workforce. (9) During uncertain economic times and nearly double-digit unemployment, (10) making a stand to protect the rights of retirees is a bitter pill most current workers cannot stomach. When the government that created the retirement system is also the entity possessing the power of regulation, there is little recourse for the public worker.

Unfortunately, as many private-sector retirees can attest, the existence of an independent regulatory system is not a silver bullet solution. Private-sector workers, since 1974, have benefited from sweeping regulation in the form of the Employee Retirement Income Security Act ("ERISA"). (11) Signed into law in 1974,12 and amended many times,13 the legislation purports to "give the American worker solid protection in his pension plan." (14) Despite such a noble intent, private pensions in America are nearing critical levels of underfunding, (15) and many attempts to strengthen the legislation have not stopped the bleeding. (16)

This article will highlight the precarious condition and multiple problems faced by the pension and retirement benefit systems in both the private and public sectors. The issues are varied and the solutions complex. An in-depth exploration of the issues would fill volumes, but the intention of this work is to provide a broad overview of the severity and urgency of the problem and to spur acutely needed discourse. An immediate call for action must go out to protect the rights of all workers. The problems have developed over many decades, long before Scott Walker became the Governor of Wisconsin. Those concerned with preserving workers' rights must make the signing of the Wisconsin bill the pen stroke heard around the world that begins the reform necessary to ensure the protection of America's workforce.

  1. BACKGROUND: THE STATE OF AMERICA'S PENSION SYSTEMS AND HOW IT GOT THERE

    Salacious headlines hearkening the doom of severely underfunded pensions in the United States have become routine. (17) Numbers ending in "billions," tossed about with ease and largely ignored by the public at large, have become commonplace. For many Americans, an accumulation of wealth and benefits that allows for the carefree enjoyment of the golden years of retirement is the truest measure of the realization of the American dream (18) and priority number one.

    Wages and benefits soared over the last seventy years to levels unimaginable by previous generations of workers, fueled by the economic steamroller that was the American economy in the post-World War II years. (19) Prior to the war, the Wagner Act of 1935, also known as the National Labor Relations Act, guaranteed workers the right to organize and bargain collectively. (20) The windfall of effective collective bargaining spilled over into nonunion industries (21) and elevated the average income of American workers from just over $10,000 a year in 1934 to over $20,000 by the end of World War II. (22) The tremendous growth in wages over that eleven-year period and the end of the war presented employers a number of huge challenges. Chief among these was the creation of a compensation scheme lucrative enough to attract the best and brightest from the enormous influx of service members discharged and returning from the war. (23) Meeting this challenge was vital to facilitate and ensure a successful transition to postwar production.

    The first American corporation to offer a defined benefit pension program was American Express in 1875, (24) but by 1929 benefits still only accounted for slightly more than one percent of total worker compensation. (25) Although many companies had created pension programs as a reward for loyal service, postwar employers viewed fringe benefits as a way to recruit employees and increase compensation without inflating wages. (26) The labor market was truly a seller's market with a mere 1.9% unemployment rate at the war's end. (27) Organized labor seized upon this opportunity and secured health care benefit packages, generous vacation allotments, sick pay, and myriad additional nonwage benefits. (28) At the close of the twentieth century, these fringe benefits constituted more than twenty-five percent of the average employee's compensation, (29) making the benefits anything but fringe.

    Union leaders also began to seek a secure future for the rank-and-file worker that extended beyond the productive working years and beyond traditional pension income. (30) Health insurance benefits increasingly joined defined-benefit plans in providing pension income and health care for retirees. (31) Health care combined with pension income became the expectation for an entire generation of post-World War II workers upon retirement. (32) The economy roared and despite the bump in unemployment as war production ceased, the rate stayed historically low until the mid-1970s when it finally surpassed the seven percent mark. (33) Workers, unionized and nonunionized, made demands, and management, in an effort to maintain the growth boom in full swing, acquiesced with increased promises of future benefits. (34) The baby boomers hailed FDR for his vision and fulfilled campaign promise to their parents in 1932: "Happy Days Are Here Again." (35)

    [FIGURE 1 OMITTED]

    The first sign of a chink in the economic armor of the juggernaut that was the postwar American economy came in 1973 when the Arab members of the Organization of the Petroleum Exporting Countries ("OPEC") instituted an oil embargo against the United States. (36) For the first time since 1934, the United States experienced a significant decline in average household income. (37) Despite this decline, the OPEC embargo did not interrupt the American economy's steady growth, as indicated by Figure 1. As unemployment rose, workers' futures became uncertain in spite of the continued economic growth. (38) More workers began to shift their focus toward the benefits and entitlements that companies had promised them, and what they discovered were benefit plans decimated by corruption, mismanagement, and complete disregard by employers and fiduciaries. (39) Most troubling was that benefits were in jeopardy even as plan sponsors continued to post consistent growth and profit numbers, as shown by Figure 2. President Kennedy's Committee on Corporate Pension Funds began investigating the debacle in 1962 (40) and those early efforts...

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