Unions Should Get Serious About Pension Underfunding

Grand Rapids’ public bus system, The Rapid (or Interurban Transit Partnership), and its union are negotiating over a plan to freeze and close its employee retirement system. Union president Larry Hanley is adamant that the plan remain open.

"This is not contract negotiation; this is a political attack on working people with no good financial reason. It's not that the agency's in trouble," Hanley told the Grand Rapids Press. "The system's not in any state of crisis. The benefits have been established for many years."

It is discouraging when union officials that are supposed to be protecting their members ignore pension underfunding.

The Rapids’ employee pension system is 73.5 percent funded and owes its members $2.7 million more than has been saved, according to the system’s most recent financial report.

In order to make sure that pensions are paid, government entities have to devote more money to catch up on this underfunding. Governments tap the same funds they use to pay employees and roll them into the costs of fringe benefits.

This increases spending on employee benefits and makes less money available for salary increases. Also, even though more is being spent on benefits, employees aren’t gaining anything, as it does not make their pensions any more generous. Indeed, this money just goes to pay for pensions benefits earned by workers in the past and should have been set aside at the time they were earned, like the state constitution requires.

You might think that a union head would care to make sure that pensions are well-funded so that current and former employees are protected. A properly funded retirement plan protects retirees and frees up money for spending on current workers’ salaries or other benefits.

Yet this hasn’t happened in Michigan, as the situation in Grand Rapids shows. Read more about pension problems across the state at www.mackinac.org/pension.