The Building Tradesman Current Issue | Back Issues Index

May 27, 2005

Unions wonder if huge pension bailout sets nasty precedent

Trades pension plans are healthier than their sick, 'single' cousins

Federal Reserve Note: New facility 'is built like a bank'

MDOT director sets up 'office' to highlight work-zone speeding

Trades complete Cliffs Michigan mine maintenance

$120 million+ expansion set for Van Andel Institute

News Briefs

 

Unions wonder if huge pension bailout sets nasty precedent

(PAI) - Some union employees of United Airlines had their financial world rocked earlier this month when a federal bankruptcy judge allowed the struggling airline to dump a record $6.6 billion in pension obligations onto the Pension Benefit Guaranty Corp. (PBGC).

The decision, which is being appealed, raised red flags throughout Wall Street, Washington D.C. and in union halls across the nation. The reasons:

  • The federally backed PBGC is already under-funded to the tune of $23.3 billion, while owing $62.3 billion. Overall, corporate defined pension benefit plans guaranteed by the PBGC are under-funded by $450 billion.
  • Federal legislators are looking at ways to prevent other financially strapped companies from dumping their pension obligations on the federal government.
  • And union retirees from United are faced with reduced future payments as a result of the bankruptcy judge's ruling.

Machinists President Tom Buffenbarger warned his union's legislative conference that United could be the first of many. "Even as late as last year, if you had a good, employer-provided defined benefit pension plan, you felt good," he said. "Today, our brothers and sisters in the airlines don't know if they will have that. Companies like United, US Air, Delta and American are thinking they can walk away" from pensions.

As for bankruptcy judge Eugene Wedoff's decision, Buffenbarger said "judges aren't there for you" on pensions. "They're there for the CEOs."

According to the Wall Street Journal, "the vast majority" of the 1,381 U.S. companies that terminated their defined benefit pension plan in 2004 were fully funded at the end, meaning workers would receive 100 percent of their benefits.

However, 192 pension plans were taken over by the PBGC last year, and this year United joins those ranks. United, in deep financial straits, said turning pension obligations for some 45,000 active and 65,000 retired or transferred workers over to the federal Pension Benefit Guaranty Corp. would save the company $645 million.

The maximum yearly pension PBGC pays to a covered worker is $45,613 per year, if the worker retires at 65 after long service. United retirees would lose any money owed to him or her above that amount. In addition, plans usually call for freezing the level of benefits for current employees.

In return for taking over the United pensions, PBGC gets $1 billion in United notes and convertible stock and a promise of $500 million more if United meets financial targets.

"How many companies have to fail, how many companies have to abandon their pension plans, how many companies have to downsize their pension benefits before President Bush and Congress pay attention?" asked U.S. Rep. George Miller. "We've been trying for years" to fix the problem, he told a press conference with United's Flight Attendants and Machinists. "But despite Enron scandals and pension collapses, there's been no action to really protect employee pensions."

A pension bill introduced by four Democrats in Congress after the judge's May 10 ruling would ban "lavish retirement golden parachutes" for executives who cut workers' pension benefits, the legislators said. It also would require full corporate disclosure to workers of executive compensation plans and would link the fate of benefits in those plans to those of rank?and?file workers.

Congress is also considering raising the premiums on companies that use the PBGC as a safety net. The Wall Street Journal said employer groups warn that they will freeze or end their plans if they have to pay higher premiums.

Miller noted that while then-United CEO Glenn Tilton ran the airline into bankruptcy in 2002, Tilton got its board to establish a special $4.5 million bankruptcy-protected trust for him last year - three months before United went broke.

United for a Fair Economy, a pro-labor think tank, noted executives of corporations with $131 billion in unfunded pension liabilities paid themselves $352 million, combined, last year.

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Trades pension plans are healthier than their sick, 'single' cousins

By Marty Mulcahy
Managing Editor

Are building trades union pensions next?

United Airlines pensioners may see their retirement income significantly reduced as a result of a bankruptcy judge's ruling. Should building trades union workers and retirees worry that their pensions won't be there for them?

John Tesija, an attorney for a dozen pension funds in Michigan, suggested that union construction workers and retirees shouldn't lose any sleep over the health of their pension plans. The reason, he said, boils down to one word: "diversification."

"The building trades are in multi-employer pension plans, which are in much better shape than the single-employer plans like we're seeing now with United," Tesija said. "That's not to say that multi-employer plans haven't been hurt by the economic downturn over the last few years, because they have. But they're not nearly in the same position as single-employer plans."

Tesija said the spread-out, diversified nature of the construction industry works as an advantage for building trades workers' pensions. Decisions on where to invest pension dollars are made jointly by union and management trustees, who put their heads together and usually wind up with a well-diversified portfolio. If a single construction employer goes bankrupt while owing pension obligations, the effect isn't as great because the employer base is usually well diversified.

Contrast that with single-employer pension plans, where workers' employment and financial futures are tied to that of a single company. Often, Tesija said, a substantial portion of single-employer pension plans are invested in the stock of the employing company - and putting all your eggs into one basket is rarely a good idea.

On the whole, building trades pension plans are making a slow comeback from an economic "perfect storm" in the last few years, Tesija said.

He said in the three years leading up to last year, building trades pension plans were faced with reduced contributions brought on by reduced man-hours. In addition, stock market returns were lousy and interest rates were low. And more workers entering retirement put greater strains on pension plans.

The nonpartisan Government Accounting Office reported a year ago that for the first time since 1981, the Pension Benefit Guaranty Corp. found all multi-employer pensions had a $261 million funding deficit in 2003 - the first shortfall since 1981.

That's a pretty good record - but the GAO also pointed out the major downside for multi-employer plans, as well as a cautionary note about their future.

"An employer's pension liabilities," the GAO said. "become a function not only of the employer's own performance but also the financial health of other employer plan sponsors. These additional sources of potential liability can be difficult to predict, increasing employers' level of uncertainty and risk. Some employers may hesitate to accept such risks if they can sponsor other plans that do not have them, such as 401(k) type defined contribution plans." Like unions, multi-employer plans are a declining breed: the GAO said there were 2,200 plans in 1980; today there are fewer than 1,700.

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Federal Reserve Note: New facility 'is built like a bank'

By Marty Mulcahy
Managing Editor

Construction-wise, there's not much we can say about the new Detroit Branch of the Federal Reserve Bank of Chicago.

The 220,000-square-foot facility, located east of Wayne State University on Warren Ave. in Detroit, will have beefed up structural steel connections, thicker walls and bullet-resistant glass. "And I think it's safe to say that the security features are about as complex on this project as you're going to find anywhere," said David Pettijohn, senior superintendent for Skanska/W3 Joint Venture, the project's Construction Manager/General Contractor.

Beyond those basics, Federal Reserve officials, citing security concerns, prefer not to go too in-depth about the design aspects of the Detroit project. The $79.5 million project was topped off on April 6 by Local 25 iron workers working for Midwest Steel. "It's been an interesting job," said iron workers Supt. Dallas Campeau. "And it's been a very good job for the iron workers."

According to a press release by the Federal Reserve Bank of Chicago, the new Detroit branch will include a cash-processing area, a vault and support and administrative areas. The building's design and equipment will allow its operations to be among the most efficient in the Federal Reserve System.

Located on a 17-acre site, the Federal Reserve Bank said the staff at the branch will engage in cash processing, economic research and education and community outreach.

"The building is by far the single biggest investment project that we have undertaken during my tenure at the Chicago Fed," said Federal Reserve Bank of Chicago President Michael Moskow. "We are allocating sizable resources to build a leading-edge facility that will be important to the Federal Reserve System and the City of Detroit."

The new building will replace the current Detroit Branch office, which was constructed on the corner of Shelby and Fort streets in downtown Detroit in 1926 and enlarged in 1955. It is one of the oldest facilities in the Federal Reserve System.

The Federal Reserve Bank of Chicago is one of 12 regional Reserve Banks that, along with the Federal Reserve Board in Washington, D.C., constitute the nation's central bank. The Federal Reserve Bank of Chicago serves the Seventh Federal Reserve District, which encompasses the northern portions of Illinois and Indiana, southern Wisconsin, the Lower Peninsula of Michigan, and the state of Iowa. Each Reserve Bank supervises member banks and bank holding companies, serves as a bank for depository institutions and the U.S. government, monitors economic conditions in the District, and participates in formulating national monetary policy.

Doug Hiller, site superintendent for Motor City Electric, said with a hint of humor that that new building "is built like a bank." He said a limited number of ground-floor entrances complicates traffic flow on the site.

There have been about 200 construction workers on the project this spring, doing "excellent" work, Pettijohn said. The facility is expected to be complete in September.


OPERATING A CRANE at the new Federal Reserve Bank project in Detroit is Glen Johnson of Operating Engineers Local 324.

PUTTING UP exterior glass on the exterior of the Federal Reserve Building are Mike Genella and Wallace Dennis of Glaziers and Glassworkers Local 357 and Harmon Inc.

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MDOT director sets up 'office' to highlight work-zone speeding

By Marty Mulcahy
Managing Editor

HOLT - A dramatic jump in the number of fatalities associated with work zone crashes in Michigan prompted Transportation Director Gloria Jeff to make a symbolic change in her office location on May 11.

Jeff had a desk and laptop moved to a rest stop on a ramp to northbound U.S. 127 and held a news conference to make the point that construction workers' "offices" are often only a few feet from moving traffic - and that speeding drivers increases the odds for tragedy.

"We'll do out part and continue to provide well-signed and marked work zones, in which the travel path is clear," Jeff said. "We ask motorists to do their part - slow down, drive the posted speed, and be alert and attentive as they proceed through the work zone."

According to the MDOT, in 2003 there were 5,800 work zone crashes, causing 1,636 injuries and 11 fatalities. In 2004, there were 6,323 crashes, 1,751 injuries and 22 fatalities.

"The hard-working men and women of Michigan's construction unions are entitled to a safe workplace and the roadways are their workplace," said John Hamilton, business manager of Operating Engineers Local 324. "By slowing down when driving in construction zones, motorists can help keep workers safe, while protecting themselves."

Indeed, this media campaign is aimed at motorist safety as much as worker safety. Michigan State Police Lt. Col. Peter Munoz said that all 22 work-zone fatalities last year were motorists. Most accidents, he said, were caused by drivers slowing or stopping suddenly while approaching a work zone. He said State Police made 9,000 work zone traffic stops last year and handed out 6,000 citations.

The 2005 "Give 'em a Brake" campaign will introduce new radio ads that warns young drivers about increased fines and penalties for speeding in work zones. In addition to supporting those efforts, MDOT will invest approximately $500,000 in work-zone enforcement again this year, bringing together Michigan State police, county sheriffs and local police to increase police presence in work zones.

Among the organizations contributing funding for the work zone safety effort: the Michigan Building Trades Council, Michigan Laborers, Operating Engineers Local 324 and the Michigan Infrastructure and Transportation Association.

"Our goal is not to write tickets, we want to make work zones safer," Munoz said. "Enforcement is not enough. All of us play a role in work zone safety by slowing down."

MDOT Director Gloria Jeff sits at a desk at a rest stop exit along M-127 while Michigan State Police Lt. Col. Peter Munoz speaks during the press conference.


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Trades complete Cliffs Michigan mine maintenance

By Marty Mulcahy
Managing Editor

Building trades workers and prime contractor Jamar performed a significant amount of maintenance work and pollution control upgrades over the last several months in an effort to further clear the air at the Cliffs Michigan Mining Company's Tilden (West) operation, west of Marquette.

Their efforts were focused on the two coal/gas burning units at the Tilden plant's iron ore pelletizing operation. Following back-to-back three-week shutdowns, Unit One was repaired and placed back into operation in February, and work on Unit Two was complete at the end of March.

"The primary objective was to upgrade the efficiency of the precipitators in both units," said Gary Hedberg, mechanical engineer at the plant for Cliffs Michigan Mining. "We met our objectives on both. We performed extensive work on both units, but the work was different."

On Unit One, the trades' primary task was installation of 105 tons of new carbon steel ductwork, which replaced a fair amount of corroded ductwork. Unit Two received a precipitator conversion rebuild.

The precipitator work will further reduce the volume of particulate from the exhaust stream during the operation of the pelletizing plant. The work will help bring the Tilden plant pelletizing units in line with more stringent federal clean air standards that will soon go into effect. The precipitator upgrades were some of the most extensive work the plant has seen since Unit One was placed in operation in 1973, and Unit Two came online in 1977.

"Work on both units went well," said Cory Bushong, project manager for Jamar, "We made the customer happy, and that's what's important."

The Tilden plant's final product is about 8 million long-tons per year of iron ore pellets, which are shipped to steel mills. Before the ore is formed into the marble-sized pellets, the iron has to be taken from the earth, crushed and separated from waste material. Rotary kilns on each pelletizing unit heat the iron to 2,400 degrees to harden the material into pellets.

Hedberg said Units 1 and 2 run concurrently 24 hours a day until they are individually taken down, usually during the first quarter of the year, for repairs and maintenance. "Normal for us is operating both units at full capacity," he said. "We keep them in good repair throughout the year, but these shutdowns are necessary for major work. Overall for this work the workers and the contractor have done a good job."

Setting up a section of ductwork for placement are Rick and Cal Jenerou of Boilermakers Local 169 and Jamar, working at the Cliffs Michigan Tilden Mine. Photo by Jeff Zdebski

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$120 million+ expansion set for Van Andel Institute

The Van Andel Institute in Grand Rapids will double in size with construction costs in the $120-150 million range, according to plans released May 17.

Construction on the 280,000-square-foot addition would begin next spring. The addition will stretch from the back of the current building down to Division Avenue and over to Crescent Street.

David Van Andel, the chairman and chief executive officer of the medical research and education center, made the announcement Tuesday, the fifth anniversary of VAI's opening.

"We can get into areas of research we haven't done before," he said. "We are already deep into cancer. Now, we can add Parkinson's disease, Alzheimer's and nutritional research."

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News Briefs
Retribution time for GOP in the cards

A union-backed drive in Congress to simplify the process of certifying the installation of unions has been thrown into reverse by the GOP.

Led by the AFL-CIO, a bill introduced by Democrats would ease the way for unions to become certified as bargaining agents for a group of workers. The bill would allow the use of only a "card check" procedure during an organizing effort, which allows the formation of a union if a majority of workers show their support for a union simply by signing a card.

Currently, a card check system allows potential unions and willing employers to circumvent the delay-ridden certification process by the National Labor Relations Board. If employers don't recognize the card-check system, they can insist on an NLRB election process, which can take years and give employers time to sway workers' opinions.

Now comes the retribution by Republicans. According to the Construction Labor Report, a coalition of business groups, including the anti-union Associated Builders and Contractors, is lobbying to push a bill sponsored by a Georgia Republican congressman, which would require unions to conduct secret ballot elections in organizing drives and during collective bargaining.

House Republican leaders "have shown interest" in the bill, the Construction Labor Report said.

More road money for Michigan - maybe
Michigan stands to receive a 28 percent increase in federal highway construction funding after action by the U.S. Senate on May 10, but approval by the House and White House are hardly a sure thing.

Our state would receive a total of $5.6 billion in federal money over five years - if the House and Senate can come to terms on the financing, and if President Bush changes his mind and agrees to spend $295 billion on the entire package - $11 billion more than the ceiling he imposed in the past.

If the Senate's version is adopted, Michigan would get a 92-cent return on every transportation tax dollar sent to Washington, compared to the current 90.5 cents. This is the latest legislative action in a 20-month long battle in Congress to settle on a dollar amount for U.S. road and bridge spending.

"This year's legislation," said Michigan Sen. Carl Levin, "would give donor states just 92 percent of their Highway Trust Fund contributions by 2009. Although that is a small step in the right direction of closing the equity gap, we still have a long way to go to achieve fairness for Michigan and other donor states.

"This bill is also a setback from last year's bill because it provides fewer overall transportation dollars. Last year, the Senate wisely passed a bill that would have pumped $318 billion into our transportation systems over 6 years.

"This year, the Senate has reduced that funding down to $295 billion. That is more than the House passed bill of $284 billion but still less than what is needed."

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