How Corruption and Kickbacks Convinced Union Leaders to Accept Defined Contribution Pension Plans

Back through the 70's and early 80's being a union organizer was my calling in life. Marx's historic quote, "Workers of the world unite, you have nothing to lose but your chains." rang my bell back then. Those were still heady times for the union movement here in Canuckistan. But the times they were a changin and the union movement was too.

It was dismaying to watch as one membership after another made the short-term selfish choices, usually supported by the union executives, like wage increases instead of job security which inevitably led to the layoff of some of its least senior members [those with young families who needed their jobs the most] and their being replaced by inappropriate technology like robotics of some other 'labour saving' devices. Another short sighted choice touted by union bosses was the refusal to take equity shares in the companies employing them instead of, or as part of, their compensation packages.

But the dumbest move, from a workers perspective anyway, was when the union memberships started accepting the argument, again from their unions leaders, that they should change their pension plans away from the 'gold standard' of a defined benefit plan and become involved in the defined contribution carnival. With a defined benefit plan, the employer bears all the investment risk and commits to a fixed payout of money, typically based on a salary, inflation adjustment and years-of-service formula. In sharp contrast, a defined contribution plan puts all the risk upon employees.

It's easy to see why the employers liked the cheaper defined contribution scheme better. It's easy to see why the investment hustlers liked it - they'd have endless inexperienced rubes to council and collect fees and bonuses from. But why would the union leaders be so unanimously in love with this scheme? Then, by the early 80's, the stories of kickbacks and corruption started to roll in. Turned out the union bosses foresaw that they'd be in the powerful and pivotal position of choosing which investment maggot's firm they'd pick to handle their union's sizable pension funds. Turned out the various hedge fund managers were quite willing to grease the various union's decision making wheels. Turned out lottsa union executives got lottsa fancy goodies and plenty of loot too. Turned out the union members had a lot more to lose than their chains and they did, at least what was left of them after all the layoffs.