Unions Are Still Threatening Businesses Over Social Security Reform

Unions are losing members and clout at the bargaining table, but that doesn’t mean they aren’t still powerful players on the political scene. Now, Big Labor is trying to stop Social Security reform, even if it hurts union members. Unions are supposed to represent their members’ interests by negotiating higher pay and better benefits, including pensions. In fact, union pension funds are the single biggest source of investment in the stock market, amounting to an estimated $6 trillion in 2003. Now, the AFL-CIO and individual unions are threatening some investment firms and corporations with pulling out their pension fund investments unless the companies withdraw their support for President Bush’s plans to overhaul the ailing Social Security program.

It’s a dangerous move, for the unions and the nation’s economy, but the administration is not taking these threats lying down. Last week, the Department of Labor fired a shot across Big Labor’s bow, warning the AFL-CIO not to play politics with its members’ pensions. The unions have threatened to withdraw their pension funds from firms that have joined a coalition in support of the president’s Social Security reform plan. The unions have staged high-profile protests in New York, Washington, San Francisco and 70 other cities, many of them outside brokerage firms that support the Bush plan for private retirement accounts financed with a portion of individuals’ Social Security taxes. And the threats have worked. Several companies and securities firms have backed away from the plan out of fear that they would face union pension fund boycotts.

But should unions be wielding their power in this way? In fact, the unions’ anti-Social-Security reform efforts are part of a broad strategy to force corporations to take positions they favor. Unions have used pension funds to pressure corporations to settle strikes, maintain costly benefit programs, block privatization and force union recognition. For example, public employee unions in California and Ohio forced building management companies that operated pension-fund-controlled buildings to hire only unionized janitorial companies to clean the buildings. Unions have also employed their pension funds to try to force out corporate directors whom they viewed as unfavorable to unions and to sponsor shareholders’ resolutions.

The problem with many of these actions, however, is that they actually hurt the union pension beneficiaries, who get lower returns on their investments because the union is pushing policies that lower profits and stock price. Pension fund managers have a moral — and legal — duty to invest retirees’ money wisely. Their fiduciary responsibility is to act prudently on behalf of those whose funds they manage. They are supposed to invest funds to ensure a good return, not to promote the political or organizational goals of the unions. When a union pension fund coerces a company to adopt policies that make it less profitable, union retirees lose money. The only thing fiduciaries are supposed to consider is the return to the pension fund on the investment made — certainly not the unions’ desire to sink a key element of the president’s domestic agenda.

AFL-CIO-affiliated unions have assigned 36 full-time staffers to work in 21 states to oppose Social Security reform, according to the New York Times, and union delegations have personally met with nearly 100 members of Congress to lobby against the president’s plan. All of this activity is paid for by union dues, without the express consent of union members who might rather have their dues go to better representation at the bargaining table. But it’s the threat to use pension funds as a weapon in this high-stakes battle that has finally pushed the Bush administration to its limits. The Department of Labor oversees union pension funds, which have historically been one of the chief sources of union corruption and racketeering. Corrupt union pension fund trustees have bilked hard-working union members out of millions of dollars while enriching themselves. As of 2002, 44 percent of the Justice Department’s 357 pending racketeering investigations involved union pension and welfare funds.

The AFL-CIO’s anti-Social Security reform campaign doesn’t represent the nadir of unions’ misuse of pension funds, but it may be the most widespread.