Study: Union Strength Impact on Pension Benefits Is Nil

New data released by the Center for Retirement Research shows that union strength appears to have no impact on the level or growth of benefits.

(August 28, 2011) — A recent study by Boston College’s Center for Retirement Research claims that unions do not lead to higher public pension benefits.

The group’s recent paper— titled “Unions and Public Pension Benefits” — asserts that “unions have no measurable effect on plan generosity or rate of growth in pension benefits, but do have a quantifiable impact on wage levels and perhaps number of workers.”

The research notes that it is widely believed that unions have a large impact on public pensions. Nevertheless, the paper — written by Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, and Laura Quinb — asserts that because pensions are legislated, not bargained, lobbying expertise may actually be more important than union size.

Furthermore, the study describes factors that result in higher public pensions, with growth in a plan’s funded ratio during good times having the biggest impact on increasing schemes. The paper concludes that the results should be viewed as only a first step in understanding the influence of public unions on employee compensation.

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This study stands in stark contrast to recent rhetoric from New Jersey Governor Chris Christie and New York Mayor Michael Bloomberg, whose public fights with city and state union leaders have raised the profile of public pensions nationwide. In June, following on the heels of the State Senate, the New Jersey State Assembly passed a public pension overhaul bill that has been championed by Christie and will see teachers pay more into their defined benefit pension plan, among other changes.

Under the bill, workers will be required to pay more of their salaries into the pension system. They would also give up annual cost-of-living increases, while also paying a percentage of their health care premiums in a tiered system based on their salary. The bill also mandates that the state make its payments to the pension fund—a requirement that would end New Jersey’s decade-long practice of skipping payments into the fund in order to shore up deficits elsewhere in the budget.

Unions, as expected, have reacted with anger to the deal. One union – the Local 1033 of the Communications Workers of America (CWA) – filed a lawsuit claiming that Christie and his predecessors’ failure to make payments to the state’s pension funds violated a constitutional prohibition against the “impairment of contracts.” The suit, brought in US District Court in New Jersey, states that since 1998 the state has made only three partial payments to the pension, skipping the remaining ones.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Aon Hewitt Urges Legal Simplification on EU Pension Legislation

Consulting firm Aon Hewitt claims that EU rules on the establishment of cross border pensions must be simplified.

(August 28, 2011) — Simplification is needed on cross-border pensions, Aon Hewitt believes, noting that the European Commission (EC) should consider a pan-European pensions regime instead of individual national guidelines.

In its response to a consultation by the European Insurance and Occupational Pensions Authority on the review of the EU Directive on the Institutions for Occupational Retirement Provision (IORPs), Leonardo Sforza, head of Research and EU Affairs at Aon Hewitt, said in a statement: “It is only through the deployment of a more business-friendly regulatory environment for occupational pensions, that employers, employees, IORPs and financial service providers will reap the full benefit of the EU Single Market. The affordability of current and future pension arrangements for employers is a crucial issue to be considered by policy makers and supervisory authorities at both the national and European levels.”

He continued: “Any new measure should not undermine the cost-effectiveness of occupational retirement provision in the European Economic Area. In this context, the EU intervention on the IORP directive needs to be more like physiotherapy – an enabler of activity – rather than like a surgical intervention which becomes invasive and, even with good intentions, runs the risk of compromising the vital organs of the many different ‘pension’ bodies.”

The European Federation for Retirement Provision had additionally argued against the use of Solvency II as a basis for the new IORP directive.

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Concern over EU pension legislation is nothing new. Last year, the UK’s National Association of Pension Funds (NAPF) cautioned that new EU rules on pension funding could increase the rate at which companies are closing their definite benefit schemes.

The NAPF, which has shared its concerns with the Confederation of British Industry (CBI), Trades Union Congress (TUC), Institute of Chartered Accountants in England and Wales (ICAEW), and Institute of Chartered Accountants of Scotland (ICAS), noted that it’s essential that the EU acknowledge the rich diversity of pension provision across member states when thinking about how to meet its core objectives of member states providing a strong, adequate and sustainable pension system.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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