mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Union Pension Scam? Feds Investigating

It isn’t just evil Wall Street bankers who commit financial fraud. Recent news out of Kansas City serves as a reminder that unions can be just as prone to financial shenanigans as major corporations. The Kansas City Star reports that multiple federal agencies, including the Department of Labor, have initiated an investigation into gross mismanagement of pension funds run by the International Brotherhood of Boilermakers.

The details are still rather sketchy, but the general outline is plenty incriminating: investment managers were hired based on family relationships with trustees, employees fired for cooperating with federal investigators and losses of over $1 billion.

Some parts are particularly juicy:

According to the lawsuit, the pension fund lost more than $1 billion in investments because of worsening financial markets in the summer and fall of 2008. Boilermakers International President Newton B. Jones told Barnhill and others that Jones’ re-election could be at risk because possible cuts in pension benefits may be needed, the lawsuit alleged.

Jones is not a trustee of the funds, but the union’s trustees serve at his pleasure. . . .

In October 2008, the lawsuit alleged, Barnhill told pension fund trustees that Jones’ plan “appeared to be financially and legally unsound,” violated policies and involved a broker “of questionable background.”

In another allegation, the lawsuit claims that George Rogers, then a union vice president, appeared to steer between $500 million and $1 billion worth of contracts to his daughter’s company. At the time, Rogers was a trustee on all three employee benefit plans.

The administrators and trustees of both public and private sector pension plans bear a heavy responsibility: managing the investments on which tens of millions of people will depend in old age.

Unfortunately there is a systemic moral hazard here. Very often, the trustees of pension programs are appointed by or have political relationships with political and/or union leaders. They are under great pressure to cover up any future shortfalls in pension plans — and, when investments fall short, their political and union masters encourage them to take wild risks and riverboat gambles to juice up their returns.

Look for more problems like this to emerge; by and large American union and government pension plans have overpromised and underinvested and as the Boomers retire the weak underpinnings of these pension funds will cause increasing problems.

For readers, the lesson is clear: your retirement planning is a stool that needs three legs. There is Social Security, which despite its problems is likely to remain, though perhaps with diminished benefits and a later retirement date. There is your company pension or (better, in our view) 401(k) plan. And there are your personal savings and investments.

Beyond these three, find work that you love and plan to do it as long as you can. Alternatively, think of retiring from your career job and transitioning to another type of work — perhaps part time, perhaps full time — that may pay less but that you find fulfilling. This kind of work can enrich your retirement both by supplementing your savings and by keeping you connected to the wider world through work that you enjoy.

But don’t trust the pin-striped professionals who run company, union and government pension funds. Most are both honest and competent, but too often, they answer to other masters who don’t have your best interests at heart.

Features Icon
show comments
  • thibaud

    A pity that we haven’t adopted the pension governance model of those deep-blue nations, Canada and Holland.

    Also, it’s a bit odd to see zip in the way of commentary from the author about JPM and the other TBTF banks that, unbelievably, have not only not been broken up post-2008 but have gotten even fatter.

    Last time I checked, the combined assets of $BAC, $C and $JPM were about 3 orders of magnitude greater than those of the Boilermakers.

  • Corlyss

    Unions should have as their motto “Crooks and scams R us!”

  • J R Yankovic

    “It isn’t just evil Wall Street bankers who commit financial fraud.”

    Now wait a minute, let’s be fair. Whether I’m a banker or a union boss, it doesn’t require being evil to commit what turns out to be financial fraud. All it takes is a rather – let us say – vehemently enhanced notion of how hard I’ve worked myself up from practically NOTHING, while pretty much everyone around me has been either a scrounging freeloader or a to-the-manner-born parasite. Including the GREAT majority of those working one or more levels below me. Many of whom, it’s true, may give every reasonable appearance of working very hard indeed (“Ah, but not hard ENOUGH! Besides, they’re just drudges anyway – I’M the one doing all the CREATING and INNOVATING!”). At all events, who’s to say one man’s fraud may not be another man’s vision and creativity? And even when it isn’t, am I not doing exactly what most of THEM would be doing if they had even half my brains and twice the guts?

    In the final count, why shouldn’t I be in on the take, considering how much I’ve given?

  • Mike S.

    Jones started out on 3rd base but tries to make it sound like he hit a triple…His father was a long time union officer in the Boilermakers…Nobody from the lower ranks makes it to the top because they know what its like to work hard and flirt with danger to earn the Benefits these guys are squandering…
    Boilermakers leadership has acquiesced to the demands of the Contractors(who’s interests are not those of the workers) and the result has been shorter outages with less workers,working less hours…add in the beating we have been taking on our pension to keep it solvent…changes in multipliers and raising the retirement age…
    Any idiot can do the math…less manhours=less contribution. take into consideration no reduction in pay or bonuses paid to officers and fund managers=lower solvenecy.
    Who pays for that stupidity?…the old man that breathed txoins and broke his back for the contractor and his union “brothers”..,PBGC takes over and we all lose half the benfits we worked for.

  • Dean McNeil

    I love this article. For I am one of the 5 in local 128 who has had his book pulled by the union. Not because I wanted to break a union, but because of the misrepresentation of our union officials. The people that run the union, but get handed a throne. I don’t get to vote for these people that in reality work for me. Unions are suppose to be for the people protection of human rights,safe work environment the health and welfare of the workers and many more. We the worker, are not working for the benefit for them they are working for the rights of us.If they knew how hard it is on a job, instead of thinking of how to get more money from the poor guy,we might stand a chance.We go from job to job away from our families, they just bring theirs to work. We need to be the ones that tell the not them tell us.we are in a democratic society not a communist regime. that is just one of my charges. brothers I could go on and on, but until we stand together like our forefathers, nothing will change.I love my trade and it came from my home country it didn’t start in north america. Did Newton B Jones know that

  • http://canadianbrotherhoodofboilermakers k chaisson

    do you have any other avenues of information that can back up these statments. this star does not have a good reputation for telling facts. ( so i am told )maybe they do?

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service