Current Pension Topics
AFL-CIO Sees the Light

By JOEL L. FRANK

Up until the mid-1960s, public higher-education employees in the United States were members, like all employees of state and local governments, of publicly administered Defined Benefit pension plans. This all changed when the unions representing higher-education employees lobbied their various state legislatures to pass enabling legislation allowing such employees to choose the type of retirement plan they wanted: the long-standing Defined Benefit plan or a new Defined Contribution plan.

The main argument the unions used in the 1960s to get the enabling legislation passed was that the higher education crowd was much more mobile than the rest of the nation's work force and to continue to compel these public employees to join a Defined Benefit pension system could be very hurtful to their long-term financial security.

In the ensuing 40 years, each and every time I brought up the fact that the public higher education crowd is the only group of state and local public employees that has a choice of the type of plan they would like to be covered under, the unions have, like a broken record, responded by telling me the Defined Contribution type is for a mobile work force and the vast majority of public employees are not as mobile as the university crowd. Apparently, two of the nation's major national unions have reached the conclusion that the balance of the nation's work force has reached a level of career mobility that demands a major shift away from their long-standing principle that a Defined Benefit pension is best for almost all.

The Sept. 4 issue of Pensions & Investments magazine featured an article regarding two union groups, the AFL-CIO and the Service Employees International Union (SEIU), that are developing separate hybrid retirement plan models. Both union groups have similar principles for hybrid plan concepts. The SEIU used to be part of the AFL-CIO.

In August, the Washington office of the AFL-CIO issued their retirement income policy principles, which would:

1) Distribute funding and risk equitably among employers and employees.

2) Provide opportunity for workers to retire at age 65 with at least 70 percent of pre-retirement income;

3) Allow portability of retirement benefits; 4) Structure defined contribution plans to serve the interest of employees; and 5) Represent participants in the governance of their plans.

Additionally, the article indicates the SEIU has proposed a hybrid pension plan model that would:

1) Cover the 50 percent of workers who are not currently covered by traditional Defined Benefit plans;

2) Offer portable retirement accounts;

3) Pool investment risk;

4) Pay benefits primarily in annuity form;

5) Require employer contributions;

6) Minimize costs; and

7) Be easily communicated.

For those of you who would like to have a clear and unbiased understanding of the Defined Benefit and Defined Contribution approaches to sound retirement planning, I encourage you to read (and re-read) the following articles that were published in The Chief on the following dates in 2006: Current Pension Topics of Feb. 3, 10; March 10; and April 7 and 14. Also, be sure to read union consultant Allen Brawer's two articles: "For Career Civil Servants Defined Benefit a Better Fit" which appeared in the Feb. 17 issue of The Chief and "Merits of Defined Benefit Pensions: Risks Low, Rewards Certain" which appeared in the March 17 issue. All of these past issues of The Chief are free (no excuses please); all you need to do is log on to: http://www.thechief-leader.com and click: "News Archive."

Mr. Frank is a fee-only Retirement Financial Planner. He can be reached by telephone at (732) 536-9472, by fax at (732) 536-7373, or via e-mail at rollover@optonline.net.