U nions have historically been viewed as staunch defenders of workers’ rights and collective-bargaining power. However, recent developments have cast a shadow over this perception, as an increasing number of unions are in dire financial straits, largely attributed to ballooning pension liabilities.
The recent turmoil within the American Federation of State, County and Municipal Employees (AFSCME) Council 13 in Pennsylvania, for example, serves as a stark reminder of the endemic issues plaguing many unions. The union’s descent into financial chaos, combined with AFSCME International’s administrative oversight, lays bare a troubling reality of mismanagement and fiscal irresponsibility that calls into question unions’ efficacy in serving their members.
Council 13’s financial trajectory over the past two decades tells a tale of neglect and shortsightedness. Despite early warning signs of deteriorating financial health, including a relentless rise in postretirement-benefit liabilities that jumped from $14.9 million in 2006 to an alarming $72.2 million by 2020, Council 13 failed to take decisive action to stem the tide. With a stunning lack of foresight and accountability, the union chose to maintain its spending levels while its assets dwindled and liabilities ballooned.
Moreover, the union’s skewed spending priorities underscore its disregard for fiscal prudence. While facing a financial crisis, Council 13 opted to allocate resources to employee benefits and per capita tax payments (payments by local chapters to the parent unions) rather than implement necessary austerity measures. This reckless misallocation of funds not only exacerbated the union’s financial woes but also betrayed the union’s fiduciary duty to its members, threatening to undermine its core mandate of advocating for them.
AFSCME Council 13’s predicament is emblematic of a broader issue.
The implications of crippling pension liabilities extend far beyond unions’ fiscal solvency and reverberate throughout the labor landscape. They raise fundamental questions about unions’ capacity to represent their members’ interests. How can unions credibly negotiate on behalf of workers when they struggle to meet their own financial obligations to employees? As unions divert resources to plug pension-funding gaps, they may find themselves hamstrung in their ability to invest in their membership and fulfill their core purpose of workplace representation.
As unions prioritize servicing mounting pension debts over investing in member benefits or negotiating better wages and working conditions, members may rightly question whether their dues are being put to effective use. The specter of pension liabilities therefore threatens to erode public trust in unions, further undermining their legitimacy. The recent taxpayer-funded bailout of the Teamsters’ Central States Pension Fund is just one example. Members of the Teamsters paid into the fund for years with the promise of a secure retirement only to have the fund bailed out with taxes paid by the working class — including them.
The causes of unions’ pension woes are manifold. Decades of deferred maintenance and inadequate funding have left many pension funds teetering on the brink of insolvency. Moreover, the changing demographic landscape, with an aging workforce and increasing life expectancy, has exacerbated the strain on pension systems, necessitating larger payouts to retirees.
Addressing the looming crisis of pension liabilities requires bold and proactive measures. Unions must implement prudent financial-management practices and explore innovations that might shore up their pension funds. This may entail difficult decisions, such as renegotiating pension agreements, advocating legislative reforms to ensure pension sustainability, or switching to defined-contribution plans.
The trend of unions’ growing pension liabilities poses a significant threat to their viability and effectiveness as advocates for workers. AFSCME Council 13’s recent troubles reveal the urgent need for unions to confront this issue head-on. Only by addressing the roots of pension liabilities and implementing sound fiscal policies can unions hope to maintain their relevance.