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.