Over the weekend, a powerful healthcare workers’ union agreed to wage and retiree pay concessions and double-digit percentage changes to pension benefits for future workers.
Why the union cooperation?
The union members’ employers aren’t state or city entities, but private hospitals.
Absent the constitutional guarantee of pension benefits that state and city workers get, union leaders looked at the unsustainable economics of their current pension system — and balked.
The union is 1199 SEIU United Healthcare Workers East, one of New York’s most powerful. The employers belong to the League of Voluntary Hospital and Homes of New York.
Though the employers depend on public money, they aren’t in the public sector.
Thus, their union workers don’t benefit from the hefty guarantee state and city workers enjoy. For public-sector workers, the state Constitution guarantees the payment of pension benefits promised to current and retired workers, regardless of the performance of the pension funds or economic and fiscal circumstances.
The union workers for the hospitals, by contrast, depend on their employers’ ability to pay their benefits out of pension-fund returns and future contributions.
Union leaders looked at the current state of their pension plan, and didn’t like what they saw. The pension fund has lost a third of its value in the past year or so, according to a joint statement by SEIU and the hospital league. The league had to file a re-funding plan with federal pension authorities.
To shore up the pension fund, union leaders agreed — pending ratification — to give up a 3 percent wage hike scheduled to take place this December, with the proceeds going to the pension fund instead.
The union will also give up one-third of a 3 percent wage hike scheduled for December 2010; the remaining hike will take place in March 2011 instead of the previous December.
In 2012, instead of getting a raise, union members will get a 2.5 percent bonus — meaning that future wage increases won’t be based on a higher wage level that year. In 2013 and 2014, the union will get 2.5 percent annual wage increases.
For current retirees, the agreement eliminates two expected annual 3 percent cost-of-living adjustments starting in December.
The money saved will help the hospitals more than double their contribution rates to the pension, from less than 8 percent now to nearly 16 percent by 2012.
More important, the union and the league have agreed to a material reduction in the pensions of future workers.
Currently, the union and the hospital league determine pensions as follows: they take the average of a worker’s highest five consecutive years’ salary over the ten years prior to retirement, multiply it by 1.85 percent, and then multiply it by years of service to determine the pension.
For future workers, the union and league will take the average salary of a worker’s final 10 years of employment, multiply it by 1.6 percent, and then multiply it by years of service.
The difference in the multiplier represents a nearly 14 percent reduction in future pension benefits.
And since the union will not longer consider the five consecutive highest-paid years, it reduces members’ ability to achieve high earnings for his last five years and have those earnings guide his future pension.
Before the new agreement, the multiplier was actually scheduled to increase to 1.875 percent for both current and future workers.
The new agreement allows for limited re-negotiation in 2013 “to protect against dramatic changes in economic conditions” — including high inflation that would render the wage hikes worth much less.
But, here’s the key: any renegotiation will cover only “all other issues other than the pension fund.”
If the pension fund does better than expected in the future, the union and the hospital league will share equally in the proceeds. (Yes, the union still could get back its old benefits in future contracts.)
These givebacks and reforms are modest. The union members still will enjoy pension benefits guaranteed by their employers, something that’s rare in the private sector now.
Further, the agreement doesn’t touch health-benefit costs. Currently, members enjoy “zero-cost” health benefits, with no co-pays on visits or prescription drugs.
But the agreement on pensions is at least a step in the right direction.
By contrast, in New York City, Mayor Bloomberg has halfheartedly asked its public-employee unions for similarly modest pension reforms tomorrow — and come up with zilch. It didn’t help in negotiations that the mayor gave workers a 4 percent raise while asking for givebacks.
Yes, the mayor has wrung some modest healthcare savings from the union workforce, including hospital co-payments, but union members still pay no part of their premiums for basic plans, as workers must in the private sector.
At the state level, Gov. Paterson has gotten civilian unions to agree to a future, less generous pension tier. But the state legislature must agree to it, making one wonder if it’s all just show. And, as E.J. pointed out last month, the deal didn’t do much on overtime and it didn’t push unions to give back any scheduled raises.
Because of the Constitutional guarantee, union leaders in the public-sector just don’t think that they have to make the same economic calculations when it comes to pensions that their brethren at SEIU made.
All the more reason why the mayor and the governor — and the state legislature — have to act with the taxpayers’ interests in mind, rather than wait for unions to cooperate on pension reform.
After all, the legislature doesn’t need any cooperation to reform future pension benefits. They just need to legislate.