Union-backed legislation under consideration by state lawmakers in Olympia could open the door for the state to fund union-run pensions for state workers in addition to the existing state-run pension system.
If adopted, HB 1069 would allow unions representing state employees to collectively bargain over “supplemental” retirement benefits. Depending on the result of these negotiations, such supplemental benefits could be funded by the state/taxpayers, deductions from state employees’ wages, or some combination of the two.
So far, the legislation has largely flown under the radar, likely due in part to the incomplete descriptions of the bill by the unions supporting it — most notably Teamsters Local 117, the union which represents many Department of Corrections (DoC) employees — and their false assurances that the legislation won’t cost the state a dime.
According to its backers, the stated goal of the legislation is to allow DoC workers who wish to retire before age 65 to purchase medical benefits from union-operated benefit plans — a perfectly legitimate aim in theory. However, the text of the legislation would go a great deal further, such that the claim made by the bill’s supporters that it won’t result in increased costs to the state is either incorrect or at least cannot be guaranteed.
Here’s why.
Under current law, unions representing state employees are not permitted to bargain over retirement benefits, since retirement benefits are provided and administered by the Department of Retirement Systems (DRS). Unions and employee interests are represented via participation in the DRS advisory committee.
If adopted as written, however, HB 1069 would allow unions representing state employees (not just those at DoC) to collectively bargain over “contributions for supplemental retirement benefits administered by, or on behalf of, an employee organization [labor union], including medical plans.” This opens the door to the state being obligated to fund two pensions for state employees: the applicable DRS pension and a union-operated pension.
Unions like the Teamsters that have a history of representing large numbers of private-sector workers often have established Taft-Hartley, multi-employer pension trusts governed by the federal Employee Retirement Income Security Act (ERISA). In their contract negotiations with private employers, these trades unions bargain for employees’ retirement benefits to be provided exclusively through the union trust. The contribution rate for employees and/or employers is also collectively bargained.
These multi-employer plans are notoriously under-funded, such that the Inflation Reduction Act passed during the Biden administration provided a $90 billion bailout to struggling union pensions.
Given the decades-long decline in private-sector union membership, many legacy trades unions like the Teamsters have expanded their organizing efforts to public employees. When they do so, they seek to get public employers to agree in bargaining to participate in the union’s pension trust, even though these public employees already have taxpayer-funded pensions through DRS. Presumably, unions want to broaden public-sector participation in their pensions to help maintain solvency and indirectly subsidize their private-sector members.
Depending on the terms of the collective bargaining agreement, the cost of the contributions to the supplemental union pension trust could be borne by the employer/taxpayers, the employees, or shared between them.
When the Freedom Foundation raised these concerns in a recent hearing on HB 1069 before the Washington State Senate Labor and Commerce Committee, the lobbyist for Teamsters 117 attempted to downplay the potential cost to the state.
While admitting that the bill would require the state to bargain over supplemental retirement benefits, she claimed that “there is nothing in this bill that would require a cost to the state. Bargaining is a bilateral process. The state will easily say ‘no’ — and often does — and that is the way it has worked in the municipalities where we do not have this bar and have bargained in these benefits.”
But if the union believes the state is going to refuse to grant the supplemental retirement benefits, why bother supporting legislation allowing it to do so?
The experience of Washington’s municipal governments, which have not historically been prevented from bargaining over retirement benefits, is instructive. Even though municipal employees have state-provided DRS pensions, the following are just a few examples of Teamsters unions succeeding in getting local government employers to pay into the Western Conference of Teamsters Pension Trust (WCTPT) at taxpayer expense:
- Kitsap County: Pays $1.50 per hour worked by Teamsters-represented county employees into the WCTPT (see Article 20(A) of the collective bargaining agreement). According to information the Freedom Foundation obtained pursuant to the Public Records Act, the annual cost to taxpayers exceeds $100,000.
- City of Vancouver: Pays $1.20 per hour worked by Teamsters-represented city employees into the WCTPT (see Article 4.1 of the collective bargaining agreement). The annual cost to taxpayers exceeds $65,000.
- City of Granger: Pays $1.50 per hour worked by Teamsters-represented city employees into the WCTPT (see Article 22 of the collective bargaining agreement). Annual cost is capped at $3,120.
- City of Tumwater: Currently pays $0.50 per hour worked by Teamsters-represented city employees into the WCTPT; the employees contribute another $3.15/hr. via a mandatory payroll deduction (see Article 18, Sec. 6 of the collective bargaining agreement).
- City of Centralia: Currently pays $0.15 per hour worked by Teamsters-represented city employees into the WCTPT; the employees contribute another $1.50/hr. via a mandatory payroll deduction (see Article 35 of the collective bargaining agreement).
It’s important to note that other trades unions with historically large private-sector memberships and existing multi-employer pensions have similar arrangements, not just the Teamsters.
If the public employer/taxpayers foot the bill for the supplemental retirement benefits, then taxpayers are on the hook for two public employee pensions. Given that the vast majority of Washington workers have no pension benefits at all, many people would likely be concerned to learn their tax dollars are funding two pensions for state employees.
On the other hand, if unions’ supplemental benefits plans are funded by mandatory employee wage reductions, many employees would object. As a matter of fact, these arrangements were originally brought to the Freedom Foundation’s attention by Teamsters-represented public employees in Washington wondering if they could cancel their contributions to the supplemental Teamsters pension. Given their ample DRS pension, many employees view these supplemental benefits as unnecessary, or at least less desirable than an immediate wage increase.
One employee of the City of Marysville described the obligation to pay into the WCTPT as “insane” while a group of Teamsters-represented Yakima County employees reported the mandatory pension contributions “didn’t sit well” with them.
Additionally, because the union pension trusts set their own rules for eligibility, vesting, and benefit amounts, some employees may pay into such plans but never be eligible for benefits. For instance, a retiree working for a Washington school district as a bus driver opposed the mandatory Teamsters pension deductions from his wages because he didn’t plan to work the five years necessary to become vested in the plan and eligible for benefits.
Not only does permitting bargaining over retirement benefits open to the door for the state to fund two pensions for its employees, but federal rules governing employer participation in such plans make it extremely difficult and costly for an employer to withdraw from such a plan.
Under ERISA, an employer participating in a multi-employer union pension plan that wishes to withdraw from the plan faces “withdrawal liability” and can be financially obligated to continue certain payments into the trust for up to 20 years after withdrawal. The purpose of imposing “withdrawal liability” is to prevent a sudden departure of many employers, or several large employers, from a plan, rendering it insolvent.
But in the case of the state, suppose a recession causes a decline in revenue. In such a scenario, ceasing payments into state employees’ second pension might seem like a sensible way to trim expenses. But the withdrawal liability the state would face would likely place any savings too far into the future to be of any practical use in balancing the books.
The only way to respect the interests of both taxpayers and state employees is to (1) provide that any supplemental pension benefits be paid for entirely by the employee and (2) allow each employee to voluntarily decide whether to participate in the plan. There is precedent for such arrangements in Washington.
For instance, Article 31 of the City of Bremerton’s collective bargaining agreement with the Teamsters provides,
“The City agrees to allow the bargaining unit employees the opportunity to voluntarily participate in the Teamsters Supplemental Pension Plan. It shall be understood that participation in this plan shall be strictly voluntary and that 100% of the cost of participation shall be the sole responsibility of the employee.”
Accordingly, an amendment to HB 1069 that permits bargaining over supplemental retirement benefits for state employees but provides that any contributions to union benefits plans be made solely by employees who voluntarily elect to participate would both protect taxpayers and allow state employees to make the financial decisions that make the most sense for them.
Rep. Suzanne Schmidt (R-Spokane Valley) proposed such an amendment in the House, but it was rejected by the Democratic majority. It’s not too late for the Senate to correct the opposite chamber’s error.
The Freedom Foundation’s testimony on HB 1069 before the Senate Labor and Commerce Committee is available below:
