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The Contradictions of Bargaining

August 7, 2012
By Marc Bussanich, LaborPress City Reporter
LaborPress spoke again to John Melia, Local 1-2’s spokesman as well as Ken Margolies, senior associate at the Worker Institute at the ILR School of Cornell University to assess some of the details of the tentative agreement reached between Local 1-2 of the Utility Workers Union of America and Con Edison.

When considering all the factors that shaped the almost four-week lockout, it seems that the union got an agreement somewhere between the worst case scenario and the best case possible. While the union was able to bargain for pay raises and bonuses as well as preserve the defined-pension benefit for current workers, that pension will essentially be eliminated for new hires.

John Melia, Local 1-2’s spokesman, said in a recent interview that the company cannot bring up the pension issue even for discussion for 25 years. But by the time the company does bring it up again, all the current workers will have been retired or nearing retirement, and the new hires replacing them will be receiving a new retirement plan.  

“What sounds unique about this tentative agreement is that the company has agreed they will not seek any reductions in the value of pensions for the current workers until they retire. However, it appears that the pension plan will eventually be phased out over time,” Margolies said.
While there isn’t enough information at this point to thoroughly analyze the agreement, the claim by the union that new hires after July 1 can potentially receive retirement payments equal or almost equal to a defined-pension benefit after 30 years would depend on the level of contributions plus very good returns on the investments offered by the company’s proposed 401(k)-like plan and Thrift Savings Plan.
Melia also said recently that it’s mathematically possible for the new hires to end up with more in retirement. Margolies noted that Melia is probably right, that it is mathematically possible, but it would depend on the amount of contributions from the workers and the company plus how those funds are invested. Participants in such plans usually have a choice of investment vehicles, i.e., stocks, bonds, money market and growth funds.
How well the new plan works depends on a fair amount on timing. For example, a new Con Ed worker’s retirement after a few years of a poor stock market performance could leave the worker with no options to make up the losses. So while the worker will have different investment vehicles available via a 401(k)-like plan, there’s an element of risk that doesn’t exist with a defined pension.
Whether a worker under the new plan has enough to live on after leaving work also depends on how long he or she lives after retirement. In defined contribution plans the retiree has whatever amount of money has been contributed plus any returns on how the funds are invested. That amount has to last for the rest of retirement while in a defined pension plan there are benefits that continue as long as the retiree is alive.

On the question of why the company would even offer to new hires a 401(k)-like plan and a TSP based on the premise that new workers can earn the same or even more than current workers in retirement, Margolies explained, “One can argue that the predictability of exactly how much they have to contribute, even if it turns out to be the same as it would have been otherwise, is worth something. However, normally the reason companies want to make such changes is to save money.”
Again, while the union protected the $8 billion pension fund for current workers, the question begs whether the union ultimately conceded on the pension issue as it will be eventually phased out.
Margolies responded, “It’s a continuation of the economy-wide trend towards the growth of defined-contribution plans and the further decline of defined-pension plans.”
He also said that it is not possible to accurately compare the new plan with the current pension system without knowing all the details of both. 
“How well you do with one plan versus another plan is based on a lot of variables, such as the amount of contributions, the level of benefits, when you retire and how long you live after retirement. It is very possible that for some people the defined-contribution plan will turn out better for them. But you lose predictability and security.”
Margolies believes Con Edison underestimated two factors. It probably believed the union would cave, but didn’t. And it didn’t expect that the city’s other unions would have been as active as they were, which ultimately contributed to the political pressure placed on Con Edison.
“A lot of the politicians are pro-labor, but they wouldn’t have been as involved if they didn’t see all of labor get behind the utility workers. The fact that the state AFL-CIO federation and the central labor council made it a priority made it possible for the union to get the political support.”
Regarding the provision in the tentative agreement that calls for three out of every four new hires to be union positions, Margolies said, “In order to evaluate this, you would have had to know how many non-bargaining unit jobs they were creating and how many they planned to create in the future as compared to what they can now do under the negotiated formula. Since prior to this agreement the company essentially was doing what it wanted in that regard, getting a guarantee that they will create more bargaining unit jobs is definitely an improvement.”
As August 15 fast approaches, the date when Local 1-2’s 8,500 members are required to submit their votes in favor of or against the agreement, LaborPress asked if Local 1-2’s agreement to allow for the dissolution of the pension over time is representative of unions bargaining themselves out of existence.
“It’s a sign of the lack of strength that unions have as compared to the past. They’re holding onto as much as they can. One possible outcome could have been that the union folded and agreed to all concessions the company was seeking. When you weigh it against that worst-case scenario, this outcome is far from that. The best-case scenario would have been if the company settled without getting any concessions. So the actual outcome is somewhere in between. In order to resist the enormous pressure for concessions unions must plan way ahead and build campaigns that convince employers it is not worth taking on the fight.”

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