The Case for Joint Trusteeship of Pension Plans

26 WorkingWorkingWorkingWorkingWorkingUSAUSAUSAUSAUSA—Summer 2002

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WorkingUSA, vol. 6, no. 1, Summer 2002, pp. 26–55.© 2002 M.E. Sharpe, Inc. All rights reserved.

ISSN 1089–7011 / 2002 $9.50 + 0.00.

ROBERT COOK has been a Marine Corps officer, a professor of sociology at Yale, a union iron-worker, and a civil rights, anti–Vietnam war, and labor activist. He is currently an attorney withthe National Labor Relations Board. This article represents his personal views only, not those ofthe NLRB.

The Case for Joint Trusteeshipof Pension PlansRobert Cook

Cook traces the history of union pension funds andenactment of Section 302 of Taft-Hartley requiring jointemployer-employee management of formerly union funds. Hereviews theories of ownership of pension funds, finding the“deferred wage theory” to fit best. This article shows that theNRLB concurred, holding that pensions are part of wages;replies to objections to joint trusteeship; and concludes thatall pension funds should be jointly trusteed.

“I can’t think of a good argument against jointly administered funds.”

—Ray Marshall, secretary of labor under President Jimmy Carter1

IN SEPTEMBER 1993, I gave a lecture at the University of Massachu-setts Labor Relations and Research Center titled “Inside the ‘OpenShop’: The Crisis of Workers’ Representation in the U.S.” I had

spent several years away from construction sites developing a laborhistory curriculum for building trades apprentices, as well as doingsome organizing work. When I returned to the job site earlier thatyear, I found a striking decline in the conditions at work. In the lec-ture, I attributed that decline to a dramatic shift in the relative power

Joint Trusteeship of Pension Plans

WorkingWorkingWorkingWorkingWorkingUSAUSAUSAUSAUSA—Summer 2002 27

of employees versus employers, and offered as evidence the decreasein union density, the drop in average weekly earnings, the increase inproductivity, and the incidence of mass layoffs. I argued that withthe decrease of union density from a historic high of about one-thirdof the private workforce to about one-tenth over the past fifty years,organized labor could no longer perform its dual task of representingits own members while also speaking for all workers as a group.2 Iconcluded that we needed a policy response on the same order ofmagnitude as the Wagner Act of 1935, an act often cited as Americanlabor’s “Magna Carta.”

Unlike Joe Hill and many in the audience, I did not propose thatthe answer was “Don’t mourn, organize.” If, after more than a hun-dred years of effort on the part of the labor movement, its proportionof workers represented was near where it had been at the turn of thecentury, then it seemed like the other 90 percent of the workforcewas going to have to wait a long time for representation. And, afterworking shoulder to shoulder with nonunion workers on “open shop”jobs,3 I had become aware of the pernicious effect that their lack oforganized representation had on these workers’ ability to protect theirrights on the job. They simply had no voice to represent their inter-ests in issues such as safety, overtime pay, worker’s compensation,unemployment insurance, and benefits, all of which the unionizedworkers took for granted.

So I made a series of policy proposals in the 1993 speech, includingamending the Occupational Safety and Health Act to require jointsafety and health committees at all workplaces; amending the Davis-Bacon Act to require worker representation on all federally fundedconstruction projects; writing worker representation requirementsinto federal procurement statutes; and amending the Worker Adjust-ment and Retraining Notification Act (WARN) to require worker rep-resentation prior to all mass layoffs. In addition, I proposed “standingSection 302 of the Taft-Hartley Act on its head” to require joint trust-eeship of all pension and welfare benefit plans.4

My interest in pursuing this proposal lay dormant until taking a courseat the University of Connecticut School of Law on pensions and em-


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ployee benefit plans, when I found the references to Section 302 and tojoint trusteeships of Multiemployer plans in our course materials. Ithought the references were sometimes condescending, sometimes un-informed, possibly prejudiced, and often at odds with my own experi-ence as a union officer and participant in such plans. Also, I began to seemore clearly the limitations of the typical single-employer trusteed planin protecting the economic security of the employees, even under theEmployee Retirement Income Security Act (ERISA).

After some initial research, I discovered that my proposal for jointtrusteeship of all pension plans was an instance of either indepen-dent discovery or innocence, since a bill mandating just that hadcome to a vote in the Congress in 1989. The bill, H.R. 2664, to amendTitle I of the Employee Retirement Income Security Act of 1974, toprovide for joint trusteeship of single-employer pension plans, wasan outgrowth of oversight hearings on the role of pension funds incorporate takeovers (commonly known as the hearings on leveragedbuyouts) held in February 1989. It was introduced by RepresentativePeter Visclosky (D-IN) and was defeated after it was attached as anamendment to a budget reconciliation act. Hearings focusing on thebill itself were held in February 1990, but no further action was taken.In June 1996, the newspaper Pensions and Investments reported thatRepresentative Marcy Kaptur (D-OH) was resurrecting the bill, buther office has confirmed that it was never formally introduced.5 Then,on March 24, 1999, an identical bill was introduced by Representa-tive Bernard Sanders (Ind.-VT) as part of the Workplace DemocracyAct of 1999, the bulk of which involves sweeping revisions to theNational Labor Relations Act (NLRA).6

This article begins with a brief history of union-operated pensionand welfare plans and a review of the legislative history of Section302 of the Labor Management Relations Act (Taft-Hartley), followedby an examination of theories of ownership of pension funds, in-cluding the gratuity, contract, deferred wage, and National Labor Re-lations Board approaches. After demonstrating how the debate overthe issue has been distorted by vestiges of the gratuity theory of pen-sions and by the tax treatment of “employer” contributions to pen-



sion funds, the article explains the Visclosky bill and analyzes thetestimony pro and con. The operation of a typical Multiemployerplan is described, leading to the conclusion that joint trusteeshipshave worked well in practice and that the right to jointly managetheir pension funds should be extended to all workers.

Union Pension Funds and Taft-Hartley Section 302

Union Pension Funds

The vast majority of the early industrial pension plans in the UnitedStates were company sponsored.7 While early trade union organiza-tions were commonly aimed at ameliorating the harsh consequencesof hard physical labor—injury, disability, and untimely death—theirefforts took the form of welfare or burial payments rather than pen-sion funds. One of the founders of Iron Workers Local 1, in Chicago,said of their exploratory meetings in the 1980s, “The Bridge Builders’Mutual Association was launched one Sunday afternoon with twentypatriots at the opening. The purpose at first was to provide suste-nance for members who, through sickness or injury, were incapaci-tated from work and to see that every member at death received adecent burial.”8 Some attempts to provide for older workers took theform of homes for the aged and lump-sum superannuation benefits.The first truly union-sponsored pension plan appears to have beenthat founded by the Pattern Makers League of North America in 1890,but that plan never paid benefits. In 1907, the International Typo-graphical Union was the first large union to create a regular pensionplan.9

In his 1932 study Trade Union Pension Systems, Murray Webb Latimerfound only three plans that could be called joint.10 One was proposedin 1911 by the United States Brewers’ Association to the InternationalUnion of the United Brewery Workers of America. The employer wasto contribute 1.5 percent of payroll and the employee 0.5 percent ofpay. The plan was voted down by a two-to-one margin by union mem-bers who opposed cooperation with the employers. “A Clean-Cut Case


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of ‘The Consciousness of Kind’” was the subtitle of one account ofthe vote.

The other two plans were local in coverage. In 1929, Local 3 of theInternational Brotherhood of Electrical Workers of America (IBEW)in New York City announced a disability and pension insurance planfunded by employer contributions of 20 cents per hour worked. Thefund would purchase group insurance for the participants. If a mem-ber left the trade or the city, his unclaimed reserve reverted to theinsurance company. (Later plans had similar provisions, but rever-sions were to the fund.) This plan was abandoned because of its costto the employers, though it appeared to be profitable to the insur-ance company. A similar agreement was made in St. Louis betweenLocal 1 of the IBEW and the Electrical Employers Association. Theemployers were to contribute $2.80 per day per man to the ElectricalProtective Association to provide for disability and life insurance and apension. In 1931, the attorney general of Missouri alleged that the ar-rangement was a conspiracy to fix prices in restraint of trade. The Mis-souri State Supreme Court entered a consent decree providing that theadministering corporations be “ousted of their corporate rights andthat their corporate charters be forfeited.” Of relevance to the gratuity-deferred wage theories of pensions debate, the contractors were thenasked to agree to a wage increase of from $13.20 to $16.00 per day, or$2.80 per day, the exact amount they were to have deposited with theAssociation. A number of the employers agreed to the increase.11

All the other plans examined by Latimer were funded by the unionmembers. These took the form of special assessments or the dedica-tion of a percentage of regular dues. Although at least one plan set upindividual accounts, most had a single fund out of which benefitswere paid. These funds were universally inadequate on an insurancebasis. Instead, they operated on a pay-as-you-go plan, much like So-cial Security today. Member assessments in the short run were smallerthan actuarially necessary due to the recruitment of new, youngmembers and the default of payments made on behalf of transientsor workers leaving the trade.12

In sum, Latimer found nineteen pension plans created by sixteen



international unions, of which sixteen plans in thirteen internationalunions actually functioned. In 1932 there remained ten plans in nineunions covering 930,000 union members, or 28 percent of total unionmembership. If one includes other types of schemes, including lump-sum payments, old-age homes, and disability benefits, there weretwenty-five unions with some type of plan covering 1,500,000 mem-bers, or 45 percent of total union membership.13 But few of theseplans were able to survive the depression. The increase in those seek-ing benefits and the decrease in those paying assessments proved tobe more than most plans could bear. In 1949, only four union-spon-sored plans were still paying benefits.14

Taft-Hartley and Section 302

The New Deal transformed labor relations and the pension system.The National Labor Relations Act created a statutory-regulatory frame-work for union recognition and collective bargaining along with aset of employers’ unfair labor practices and an enforcement mecha-nism.15 The Social Security Act instituted a government-sponsoredpension system with universal coverage. The Fair Labor StandardsAct imposed a set of work and pay rules applicable to all workers,whether or not they had been able to organize themselves for collec-tive bargaining purposes. All of these programs were vigorously op-posed by business interests in the shop, the legislature, and the courts.The NLRA, for example, did not become fully operational until theU.S. Supreme Court decision in NLRB v. Jones and Laughlin in 1937.16

Despite continuing opposition and obstinance by management,union membership grew rapidly. Labor union membership as a per-cent of nonagricultural employment grew from 11.7 percent in 1930to 27.2 percent in 1940 to an all-time high of 35.8 percent in 1945.The number of union members increased from about 3.4 million to8.7 million to 14.3 million during the same period.17 This growth isattributable in part to the NLRA and in part to the wartime demandfor labor and the ensuing shortage, which emboldened workers. Butit must also be attributed to the farsighted and aggressive leadership


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of the president of the United Mine Workers (UMW), John L. Lewis.Lewis had become president of the UMW in 1920, a position he

held until retirement in 1960. Although he was attacked as conserva-tive, autocratic, and self-centered, Lewis apparently understood thatthe 1920s were not a propitious time for building the labor move-ment. When that time came in the middle of the next decade, heseized the moment and led a group of unions first into the Commit-tee for Industrial Organization and then out of the American Federa-

tion of Labor (AFL) to form the Congress of Industrial Organizations(CIO) in 1938. Lewis used both his personal power and the resourcesof the UMW (which he had harbored) to spur the movement to orga-nize workers into industrywide unions rather than the craft-basedformat of the AFL. In his role as president of the UMW, he also led hisunion in a series of highly publicized confrontations with the coalindustry and the U.S. government. In the process, Lewis became boththe best known and the most disliked labor leader in America. In1945, 63 percent of the public could identify John L. Lewis. In 1943,nine times as many people disapproved of Lewis as approved of him.18

Lewis’s specific contribution to Section 302 was his effort to createan employer-financed, union-controlled welfare fund for the coalindustry. After the coal companies rejected this proposal in 1946, theUMW called a strike, which shut down coal production. PresidentTruman seized the mines, using the power granted by the War LaborDisputes Act.19 Under the act, the secretary of the interior signed anagreement with the UMW for a five-cent-per-ton royalty to be paid tothe UMW welfare and retirement fund. The fund was to be jointlytrusteed by the government, the union, and a neutral. The govern-ment trustee would be replaced by an industry representative afterthe Disputes Act expired. Disagreements in settling the details of the

Lewis’s specific contribution to Section 302 was his effort tocreate an employer-financed, union-controlled welfare fund forthe coal industry.



fund’s administration led to more strikes, which furthered publicdisapprobation of Lewis.20

The UMW was not alone in seeking gains for its members after thewar. In 1946 there were almost 5,000 strikes involving 4.6 millionworkers, or 14.5 percent of employed wage earners, for total of 116million man-days idle. Compare these figures to 1944 when aboutthe same number of strikes involved less than half as many workerswith only 8.7 million man days idle, or to 1940 when there were halfas many strikes involving only 577,000 workers.21 Meanwhile, priceswere rising, with the Consumer Price Index for all items increasingby 39 percent from 1940 to 1946, and food prices by 65 percent.22

Then, as now, a significant proportion of the public had been con-vinced that price increases follow wage increases, and that the uniondemands would lead to further inflation.

The Republican Party promised to bring “big labor” under control,and the voters apparently believed them. After the election of 1946,there was a Republican majority in both House and Senate for the firsttime since 1930.23 The stage was set for Taft-Hartley and Section 302.

If the Wagner Act was labor’s Magna Carta, then the Taft-HartleyAct was the employers’ counterrevolution. It inspired emotional re-sponses. President Truman issued a vitriolic message with his veto,which was promptly overridden by both houses.24 Phillip Murray,president of the CIO, called it “The Taft-Hartley Slave-Labor Act”passed by “the reactionary 80th Congress.”25 Representative FredHartley (D-NJ), the act’s principal author, wrote that he could agreewith one clause of Truman’s summary statement of opposition—”The bill taken as a whole would reverse the basic direction of ournational labor policy.” That, said Hartley, was exactly what he hadmeant to do, and he “had written our bill with that thought alwaysuppermost in my mind.”26

Provisions of the Taft-Hartley Act included:

• The separation of the judicial and prosecutorial functions ofthe NLRB, dividing them between the board and the generalcounsel.


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• The creation of a set of unfair labor practices by unions, includ-ing protection of the right of an employee to refrain from con-certed activity and prohibition of secondary boycotts (previouslya principal form of concerted activity).

• Restoration of the labor injunction.• Prohibition of the closed shop, which required the hiring of

only union members.• Section 302, which prohibits payments by employers to unions

unless they are for the exclusive benefit of the employees andtheir dependents, there is a specific written agreement, the pay-ments are made to a separate trust, and “employees and em-ployers are equally represented in the administration of suchfund.”

Conventional “lawyers’ histories” see the joint trusteeship provi-sion of Section 302 as an outcome of demands by the coal minersand John L. Lewis for per-ton payments to the union welfare fund.For example, the U.S. Supreme Court states:

In 1946, Congress was disturbed by the demands of certain unionsthat the employers contribute to “welfare funds” that were in the solecontrol of the union or its officers and could be used as the individualofficers saw fit. The United Mine Workers’ demand that mine opera-tors create a welfare fund for the union by contributing ten cents foreach ton of coal mined caused Congress to act. The Case bill, 79thCong., 2d sess., H.R. 4908, which regulated welfare funds in a mannersimilar to Section 302, was enacted in 1949, but was vetoed by thepresident. The following year, the Taft-Hartley Act containing Section302 was passed over another veto.27

This lawyers’ history is then cited in circular fashion by the Court,which is then cited by a commentator who is then cited by anothercommentator.28

Representative Fred Hartley, however, did not intend that Section302 provide for employer payments to union funds under some speci-fied circumstances. He did not like unions or union leaders, unlessthey were localized and docile. He had a long-standing desire torestrict the power of organized labor. Having held office since 1929,



he cast the only House vote of record in opposition to the NLRA.29

Of union welfare funds, he said, “Certainly it is not in the nationalinterest for union leaders to control these great, unregulated, un-taxed funds derived from exactions upon employers.” His bill asoriginally written would have completely prohibited such payments.30

So it was not Lewis’s demand that “caused” Congress to act. RatherLewis was the excuse or pretext for actions that had long been plannedand anticipated by opponents of the Wagner Act.31 John L. Lewis, as

Hartley put it, merely “came to the rescue” of the effort to “reversethe basic direction of our national labor policy.”32 It was with the“assistance” of Lewis that the Case bill (sponsored by RepresentativeFrancis Case [R-SD]), the precursor of Taft-Hartley and Section 302,was finally passed by the Senate after extensive delays.33

Lewis does receive extensive attention in the congressional debateon Section 302, serving as a handy whipping boy and bogeyman.Hartley’s original version is described as intended to “prohibit thevery thing that is being done under the Krug-Lewis contract,” the“very thing that caused the disastrous coal strike last summer.” It isan “effort to punish John L. Lewis,” brought about by “Mr. Lewis’demand for a 5 cents a ton royalty for a welfare fund for coal min-ers.” Lewis’ demand was so broad that “practically the fund became awar chest.”34 Hartley opposed an amendment to permit contributionsunder joint trusteeship, saying it might be termed the “John L. Lewisamendment.” But Hartley returned to the more general propositionthat his original version as reported out by the committee was anattempt “to put safeguards on something that had begun to grow inthis country in which we saw great danger . . . a dangerous threat.”35

In support of their prohibition proposal, Hartley and his colleaguesdeveloped what might be called the “extortion theory” of employer

In support of their prohibition proposal, Hartley and hiscolleagues developed what might be called the “extortiontheory” of employer payments to union welfare funds.


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payments to union welfare funds. These were not deferred wages oreven mere gratuities. They were “royalties, taxes, or other exactions,”subject to “racketeering,” a “direct tax on the consumer,” “in theguise of welfare funds,” “rackets,” “extortion,” and “shaking downthe employer.”36 Hartley said he had been told that any amendmentto his proposal might really “result in a tax being passed on to theconsumers of coal . . ., or that the workers in the automobile industrymight decide to tax every car, let us say, for $50 or $100, for somewelfare, insurance or trust fund, which might be passed on to theconsumers.”37 At least one court has accepted this theory. In a caseinvolving the exclusion of time as a mine operator from the calcula-tion of years of service as a miner, U.S. District Court Judge Dumbauldopined:

John D. Rockefeller, founder of the Standard Oil Trust, won uniqueand lasting fame in the annals of bargaining power by inducing rail-roads to accord him a rebate, not only upon his own freight traffic,but also upon that of other shippers (his competitors) as well. John L.Lewis, on behalf of the United Mine Workers of America, attainedsimilar eminence by bargaining for the payment of royalties upon themining of coal owned by other parties. The term “royalty” had there-tofore been deemed to mean a payment to the owner of coal or othernatural resources when exploited for the market by others. The Lewis“royalty” was to be payable even by the owner himself upon the min-ing of his own coal and to a nonowner.38

Hartley’s proposal did not fare well in the Senate. It was rejected inthe Senate version of the bill, then restored in conference with theexceptions Hartley strongly opposed.39 Some senators offered anemployee ownership theory of contributions to the funds in arguingeither for joint trusteeship (in helping to safeguard the employees’money) or against any restrictions at all (employees have a right tomanage their own money). Senator Robert Taft—“This represents moneyearned by the employees, in the form of a tax 5 cents a ton, which isturned into a fund.” Senator Wayne Morse—”Is not the fund . . . re-ally for the employees? Should not the employees, therefore, have theright to administer it?” Senator Joseph Ball—“On any reasonable ba-sis, payments by an employer are in effect compensation to his em-



ployees. . . . All we seek to do by the amendment is to make sure thatthe employees whose labor really builds this fund . . . shall receivethe benefits.” In summary, said Ball, “These funds represent moneyearned by the employees. . . . All we are doing is protecting the rights ofemployees whose toil creates these welfare funds.”40

It can be fairly said that the Taft-Hartley Act, as a whole, succeededin reversing the basic direction of our national labor policy, just asHartley intended. He did not fare so well with Section 302. With his

absolutist version excised by the Senate in its bill, he would havedone better to have left well enough alone. In its amended and finalversion, Section 302 lent legitimacy to union funds with joint trustee-ship. From a trickle in 1947, there came a flood of such plans, in-creasing to 798 multiemployer plans by 1960, covering about 3.3million workers, with a book value of about $3 billion in 1964.41 Andin their actual practice of collective bargaining, they became a forcein turning the “employee ownership” theory of pension funds into apractical reality. By 1988, there were 9.7 million participants inMultiemployer plans with assets of $164 billion.42 Ironically, insteadof “union” plans, these became known as “Taft-Hartley” plans.

Theories of Pension Ownership: Whose Money IsThis?

Opposition to the extension of joint trusteeship to all pension plansoften rests on the proposition that the funds consist of voluntary con-tributions by the employer, thus raising the question, just whose moneyis this, anyway? Legal theories of pension ownership attempt to an-swer this question. Do participants in a plan have a right to benefitsor plan assets? Does the answer depend on the nominal “source” of

It can be fairly said that the Taft-Hartley Act, as a whole,succeeded in reversing the basic direction of our nationallabor policy, just as Hartley intended.


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the contributions to the plan? Answers have included the gratuity orvoluntary theory, rights found under a bilateral, unilateral, or prom-issory estoppel contract theory, or the deferred wages theory.43

Mere Gratuity

The gratuity theory of pensions stands with employment at will andthe master-servant doctrine as a vestige of nineteenth-century theo-ries of the employment relationship. The 1898 case of McNevin v.Solvay Process Co. is still the leading expression of this theory.44 JamesMcNevin sued to recover $52.54 claimed due him from the companypension fund. He had been discharged without cause after five years,and that amount had been credited to him in a passbook in accor-dance with a company pension plan. “The employees are paid stipu-lated wages, and no part of the fund is derived from their wages, orcontributed to by them, but it is voluntarily created by the defendantsetting apart a portion of its profits belonging to its shareholders,which, through the action of the corporation, are voluntarily relin-quished for the benefit of its employees, pursuant to the scheme setforth in the printed rules and regulations.” The company rules andregulations for the pension stated that the funds were the sole prop-erty of the company, that they were gifts, that they remained theproperty of the company until paid to the employee. Trustees wereunder no obligation to put any amount into the fund unless therewas a surplus after paying dividends to shareholders, and there wasno limit on payments to shareholders. The court held, over a strongdissent, that the scheme was a promise to give a sum in the future,with absolute reservation of the right to decide not to complete thegift. McNevin never got his $52.54.

Similar holdings can be found in Dolge v. Dolge,45 where it was foundthat sums credited in passbooks of employees as distribution of ashare of the earnings of the business were voluntary and merely anincomplete gift, not wages (it was, the court said, “simply a benevo-lent plan”); in Menke v. Thompson,46 where the denial of a retiree’sclaim was upheld because “The pension plan of appellee railroad com-



pany was entirely voluntary, and its benefits were, as declared in theplan, gratuities”; and in Kravitz v. Twentieth Century-Fox Film Corpo-ration,47 where, under a retirement plan created voluntarily by theemployer and supported without contribution on the part of employ-ees, any benefits were equivalent to a gift.

Contract

The dissenters in Solvay Process put forward a different and less for-malistic theory of Solvay’s liability. There was, they said, a promisefounded upon valuable consideration conferring benefit on the promi-sor. This promise formed a contract based on consideration, whichconsisted of McNevin’s agreement to perform his work faithfully andnot to use information gained while employed to the disadvantage ofthe company. Any statement to the contrary in the plan regulationscould not change the “true character” of the instrument.48

Another approach is to see the relationship as a unilateral contract,where there is an offer that may be accepted by performance of the actspecified in the offer. In Oregon, the Supreme Court has held that “theadoption of a pension plan is an offer for a unilateral contract. . . . ‘Or-egon has joined the ranks of those rejecting the gratuity theory of pen-sions and has held that contractual rights to a pension can be createdbetween the employee and the employer.’ Thus an employee pension ordisability plan may be viewed as ‘an offer to the employee which may beaccepted by the employee’s continued employment, and such employ-ment constitutes the underlying consideration for the promise.’”49

There is also a promissory estoppel or reliance theory of contractas formulated in Section 90 of the Second Restatement of Contracts:“A promise which the promisor should reasonably expect to induceaction or forbearance on the part of the promisee or a third personand which does induce such action or forbearance is binding if in-justice can be avoided only by enforcement of the promise. Theremedy granted for breach may be limited as justice requires.” InCalifornia, an appellate court found estoppel an alternative hold-ing to a unilateral contract where a bank employee of twenty-three


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years sought a pension from the liquidator. “Our conclusion thatthere was an enforceable obligation to pay the balance of the retire-ment allowance need not be predicated solely upon the theory thatthere was an offer and acceptance and consideration. Even if thepromise had been originally intended as a promise to make a gift,under the facts here involved, such promise would be enforceable. . . .Under [the] circumstances the doctrine of promissory estoppel is ap-plicable. . . . This constitutes an alternative ground for holding thatthere was a legally enforceable obligation to pay the balance of theretirement allowance.”50

Deferred Wages

Despite the persistence of the gratuity theory in thinking about pen-sions, it has long been argued that “A pension system is . . . reallypaid by the employee, not perhaps in money, but in the forgoing ofan increase in wages which he might obtain except for the establish-ment of a pension system.”51 Support for the deferred-wage theory ofpensions can now be found in authoritative texts, case law, statutoryprovisions for tax treatment of contributions, and labor law underthe National Labor Relations Act.

According to a leading pension law text, “The commonly acceptedmodern theory of pension obligations is the deferred wage theory, whichtreats pensions as compensation earned during employment but paidduring retirement.”52 Also, “Pensions are deferred wages regardless ofwhether the pension plan is contributory or non-contributory” and“Regardless of the nature of the qualified plan . . . pensions are de-ferred wages and the participant is, in an important sense, the settlor ofa trust for his own benefit.”53 This assertion is supported in the caselaw. For example, in the home state of Solvay Process, a court held indivorce proceedings that although a husband’s rights in a fireman’spension had not vested, the pension rights were marital property. “Pen-sion benefits are a form of deferred compensation for services ren-dered. . . . an employee acquires a property right to pension benefitswhen he enters upon the performance of his employment contract.”54



A case involving public pensions highlights the arbitrary charac-ter of the distinction between “employer” and “employee” contri-butions to pension plans. An Illinois judge sought the refund oftaxes withheld from contributions to the state retirement system,claiming tax exemption under Internal Revenue Code (IRC) Sec-tion 414(h)(2).55 That section provides that in a state or local gov-ernment plan, “employee” contributions become “employer”contributions if they are “picked up” by the employing unit. Insubsequent Revenue Rulings, the Internal Revenue Service has de-fined “picked up” contributions to mean those required of employ-ees under the plan and designated as “employee” contributions forstate payroll purposes but which are designated “employer” contri-butions for federal tax purposes.56 In this case, the state statute au-thorizing the pickup designation was enacted during the judge’sterm in office. The court held that the very same contributions thatwere now deductible were not deductible prior to the enactment. AsJudge Frank Easterbrook of the U.S. Court of Appeals, Seventh Cir-cuit, comments, these distinctions are “almost wholly nominal” andare “one example of the dominance of form over substance in the taxcode.” But “The designation has consequences. Taxes deferred aretaxes reduced.”57

When contributions to qualified plans are designated “employer,”taxes are deferred because contributions so named are given specialtreatment under the Internal Revenue Code. For the employer, theyare treated as current expenses to be deducted from income underIRC Section 404(a). For the employee, they are treated as tax-freeuntil distributed in the future under IRC Section 402(a). For plansqualifying under IRC section 401(k), an employee may even elect tomake a contribution from current compensation, which is then des-ignated an “employer” contribution for tax purposes. This is knownas a “cash or deferred arrangement” or “CODA,” making explicit thearbitrary nature of the designation and the unity of wages and pay-roll contributions. The choice of “employee” or “employer” to modifya contribution is simply a naming convention, not a description ofthe source of the funds.


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The NLRB’s Inland Steel Decision

In 1948, the National Labor Relations Board decided the matter ofInland Steel Co. and Local Unions 1010 and 64, United Steelworkersof America.58 Inland Steel had several pension plans, dating back to1936. It had most recently established a Past Service Pension Trust, towhich there was no direct employee contribution. The terms of theplan included automatic retirement at age sixty-five. The union

claimed that the unilateral imposition of this plan constituted a breachof the existing contract, but the company refused to discuss the is-sue, citing a “management clause” in the contract and claiming thatthe terms of a pension plan were within the sole discretion of man-agement. Upon a charge by the union, a complaint was issued by theBoard alleging unfair labor practices by Inland Steel in that the com-pany had violated Section 8(a)(5) of the act by refusal to bargaincollectively with the union with respect to “rates of pay, wages, hoursof employment, or other conditions of employment.”59

The board upheld the trial examiner’s finding of an unfair laborpractice by Inland Steel in its refusal to bargain over “wages and otherconditions of employment.” “‘Wages’ . . . must be construed to in-clude emoluments of value, like pension and insurance benefits. . . .This type of wage enhancement or increase, no less than any other,becomes an integral part of the entire wage structure.” The boardheld further that the terms of a pension plan constituted “conditionsof employment” and found no merit in the company’s claim that thephrase merely referred to the physical conditions of work.60 The es-tablishment and the terms and conditions of pension plans were heldto be “mandatory” subjects of collective bargaining.61

The board held further that the terms of a pension planconstituted “conditions of employment” and found no merit inthe company’s claim that the phrase merely referred to thephysical conditions of work.



In reaching their decisions, the board, the trial examiner, and thecourt of appeals drew support from the social sciences, economics,social security and tax law, and the legislative history of the act. One ofthe sources cited was Section 302, in that it “discloses congressionalaffirmation of the inclusion of such [welfare] schemes within the statu-tory scope of collective bargaining.”62 The Inland Steel decision be-came the springboard for the rapid expansion of collectively bargainedsingle-employer pension plans in the 1950s, and that spurred the ex-pansion of Taft-Hartley plans.63 “By 1960 unions had thus succeeded inestablishing a large and viable pension edifice. . . . By successfullyasserting claims of benefit entitlement, they helped legitimate and in-stitutionalize private pensions as a fact of modern economic life.”64

For Joint Trusteeships

If pensions are based upon contractually created rights, if they con-stitute part of an employee’s wages, and they are a mandatory subjectof collective bargaining, the obvious question is not, why have jointtrusteeships? It is, instead, why not have joint trusteeships? This is,after all, the employees’ money we are talking about. The answer istwofold. First is the vestigial persistence of the gratuity theory, en-couraged by the naming convention of the Internal Revenue Code. Itis extremely common to hear people say, “My benefits don’t cost meanything—my employer pays for them.” There is also the oft-statedassertion that in a defined-benefit plan “the employer bears all therisk.” Second is the extensive lobbying campaign by single-plan em-ployers, their representatives, and trade associations. “What is at stakehere is control over pension assets. Employers have it; they don’t wantto give it up.”65 They simply do not want to share the management ofhuge pension funds with employee trustees, who may be seen as ig-norant, dishonest, or both.

Jimmy Hoffa’s abuse of the Teamsters Central and Southern StatesPension Fund is widely cited as an example of the dangers of jointtrusteeship.66 But in 1989, the House Subcommittee on Labor-Man-agement Relations held hearings on the role of pension funds in cor-


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porate takeovers.67 These hearings documented a range of abuses bycorporate trustees, including substantial investments in junk bonds,premature terminations of plans as part of a buyout, and conflicts ofinterest in the dual role as both plan sponsor and plan trustee.68 As aresult of the revelations in those hearings, Representative PeterVisclosky introduced H.R. 2664, a bill to amend Title I of ERISA toprovide for joint trusteeship of single-employer pension plans.

The Visclosky Bill and Response

H.R. 2664 would amend Section 403(a) of ERISA by adding a sectionrequiring that the assets of a single-employer plan be held in trust bya joint board of trustees consisting of “two or more trustees repre-senting on an equal basis the interests of the employer or employersmaintaining the plan and the interests of the participants and theirbeneficiaries.” Where there is a collectively bargained plan, the billprovides that the employee trustees shall be designated by the exit-ing employee organization (union). Where there is no existing orga-nization, or where that organization waives its right to designate thetrustee, the employee representatives are to be elected by secret bal-lot under regulations provided by the secretary of labor.

In his opening statement at the hearings on the bill itself, Viscloskymade the basic case for joint trusteeship: “This bill recognizes thatpension fund assets are deferred compensation for employees, andthat plan participants should have the right to influence investmentdecisions and to be equal partners with their employers in makingthe critical decisions that affect their money.”69 One would not ex-pect this simple proposition to produce an outcry of opposition, butit did. The arguments offered against joint trusteeship included thefollowing:70

1. There is no need for joint trusteeship, as the pension system ishealthy. Besides, the fiduciary standards of ERISA already im-pose a duty of loyalty, prudence, and diversification, and pro-hibit self-interested transactions.



2. Since employees have been shown to be conservative in theirinvestments, there would be increased costs to the funds be-cause of the lower rate of return on plan assets. The investmentperformance of Multiemployer plans is inferior to that of single-employer plans.

3. Not only would this conservatism affect individual plans, but itcould have a negative impact on capital markets and theeconomy generally, as plan assets are shifted from equity tofixed-income investments.

4. In defined-benefit plans, the employer bears all the risk of poorperformance, so the employer should have all the say in themanagement of fund assets.

5. The administrative cost would be high as a result of addingunnecessary complexity to daily decision-making. The addi-tional costs and the procedural requirements of elections wouldbe especially burdensome, as demonstrated by the experienceof NLRB representation elections.

6. This is just a back-door method of unionizing (employer po-sition); or, this is a form of company union (some unions’position).

7. Since pension plans are voluntarily created by the employer,the net effect of all these problems will be to discourage theformation of new plans and to encourage termination of exist-ing plans.

In response to these claims, it can be argued that:

1. This is not about need, it is about the employees’ right to par-ticipate in the management of their own money. Depending onthe ERISA fiduciary standards ignores the reality of the conflictbetween the role of employer and the role of trustee. There isplenty of evidence of plan mismanagement flowing from thisdual role. Besides, the ERISA standards will apply equally toemployee trustees.

2. Working people have been conservative in their managementsavings. This is due to the fact that those limited savings have


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not come easily, and they have seen first-hand the consequencesof get-rich-quick schemes to which their cohorts fall prey. Theprotection of principal is one of the first precepts of asset man-agement and should not be easily dismissed. Also, sinceMultiemployer funds are funded by hourly contributions fixedfor a two-to-five-year contractual period, the contribution can-not be easily changed to adjust for market downturns. The lowerreturns of Multiemployer funds are due to the greater propor-tion of bonds in the asset mix. Within asset classes, those plansperform better than or equal to single-employer funds, and theyhave also bettered the market. This conservatism paid off in the1987 stock market crash, when Multiemployer funds outper-formed their single-employer counterparts.71 But joint funds havechanged with the times as well. In 1995, Multiemployer fundshad a median return of 29.6 percent; corporate funds with lessthan $100 million returned 27.1 percent.72

3. As just stated, multiemployer plans have been increasing theirallocation of equity investments in keeping with current ap-proaches to fund management. Multiemployer fund trustees alsopoint out the need to look at the underlying nature of the capi-tal investment and its effect on long-term economic growth, asopposed to short-term financial speculation.

4. Again, this is still the employees’ money, and they have a rightto help manage it. They could have taken it in increased wages,other forms of benefits, a bargained-for increase in the definedpension benefits, or cost-of-living adjustments (COLAs). Theymight prefer that it be invested in capital improvements to plantand equipment. It is also not true to say the employer bears allthe risk. Overfunded plans are subject to termination or raidingin buyouts and mergers. Underfunded plans are not fully in-sured, despite the Pension Benefit Guaranty Corporation.73

5. Experience with Multiemployer plans does not indicate that this(see point number 5 above) is a problem. Employee trustees aremanaging their own money and are usually concerned aboutcontrolling administrative costs. The election process need not



be as complex as that administered by the NLRB. Those elec-tions take place in an adversarial context with each side look-ing for the slightest excuse to void the election if it loses.74

Elections for employee trustees would be much simpler andcould probably be conducted by mail ballot.

6. To both sides, it must be said that the National Labor Relations Actwould still govern collective bargaining, and the employee trust-ees would not be empowered to negotiate the terms of the plan,the size of the contribution, or any other “wage or condition ofemployment,” nor could they speak for the employees on any is-sue other than the management of the fund. As for the union ob-jection, if after a hundred years of union organizing less than 10percent of the private workforce is unionized, how much longerare we going to deprive other workers of their right to managepension funds? And even though unionized, only a few collec-tively bargained single-employer plans have joint trustees now.75

7. Pension plans are not created “voluntarily” by the employer—they are created for business purposes such as the perceivedneed to retire older employees, or to encourage employee loy-alty, or because they cost less than an increase in direct wages,or to be used as “profit centers”;76 or they are created in re-sponse to labor market demands; or they are collectively bar-gained. Plan terminations and the decrease in the formation ofnew defined-benefit plans are the result of changes in the na-ture of the employment relationship, along with the decreasein union density and the resultant decline in the influence ofcollectively bargained plans as a pattern for the labor market. Ifthe current experiment with the individuation of retirementsavings proves unsuccessful, or if the labor market enters an-other phase, the demand for defined benefit plans could rap-idly increase. Besides, the requirement for joint trusteeshipapplies to defined contribution plans as well. Even in the caseof individually managed accounts, employee trustees could pressfor efficient fund administration, and they could oversee theselection of fund choices.


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Wage Bargaining and Joint Funds in the ConstructionIndustry

To understand how jointly trusteed multiemployer plans operate, itmay be helpful to describe the operation of a typical building tradesplan.77 Actual wage bargaining in the construction industry proceedson the assumption that the entire wage package is the employees’money. Contracts are typically for three years, and negotiations be-gin before the expiration of the contract. To formulate a proposal,union representatives look at the cost of living, the labor market, thestate of the economy, and the state of their joint funds. That proposalwill, in good times, include an increase in the total wage package indollars per hour. The debate at the union meeting will be about justhow that increase will be distributed.

How much will go into “the envelope” (the paycheck)? How muchto the pension fund, or medical insurance, or the apprentice fund?What about an increase in dues for the operating funds of the local?Sometimes the trustees of the pension fund have determined that anincrease in that contribution is needed to meet funding requirements,or to provide an increase in the accrual rate for future retirees, or toincrease the benefits for past retirees. Sometimes there will be a set ofchoices of providers or coverage for medical insurance plans. Addingdental care, for example, might require a fifty-cents-per-hour increasein the contribution.

Through all of this, there is no distinction between “employer” or“employee” contribution. Everyone understands that this is a unitarywage package that is to be divided among various needs, includingthat for current cash known as “the envelope.” That understanding isreinforced by industry-pricing and cost-accounting practices basedon unit costs. Labor costs are estimated and billed at an hourly ratethat includes the total wage package plus overhead, plus profit. Whatthe construction consumer finally sees is a figure like the hourly rateposted in the repair department of a new-car dealership.

In the past, before computers, accounting for this system was ex-tremely difficult and time-consuming. Each week for each employee,it is necessary to keep track of hours worked for each employer, then



to allocate the total wage package into direct payroll and other. The“other” payment from the employer to the union includes both tax-deferred amounts (from the total wage package) and taxable amounts(from each employee’s paycheck). All the distribution of the “other”amounts to the proper funds is done by union officers and adminis-trators. In 1995, one plan had a total “other” value of $12.49 per hour,allocated among ten funds in amounts ranging from $.02 (politicalaction, taxable), to $2.60 (pension, tax deferred), to $4.00 (healthand welfare, tax exempt).

As commentators have noted, it has sometimes been difficult to gettimely payment of the “other” amounts from the contractors, who areoften cash short. This may result in plans’ being underfunded or evencollapsing. Delaying collection may be a form of favoritism or worse.Payments are usually made on a monthly or quarterly basis, but someplans have developed a “stamp” system for weekly collection. Each con-tractor is required to purchase a package of stamps (in hourly denomi-nations) equal to the total employee hours for the week. Each employeeis then given a set of stamps, along with his paycheck, equal to the hourshe has worked for the week. The employee then knows that his benefits,union dues, and other assessments have been paid, and that the moneyis in the hands of the union. Prior to computerized accounting, thestamps were even used for the calculation of the amounts of the employ-ees’ credits in funds that had individual accounts.

The management of all this money is handled by union mem-bers, officers, joint trustees, and hired administrators. Investmentof pension funds (defined benefit) is now usually in the hands ofportfolio managers who are hired and fired on the basis of perfor-mance. Defined-contribution funds have kept pace with industrytrends in response to participant demands for investment control.One started as a bank-managed fixed-income fund with a contribu-tion of $1 per hour (tax deferred). Then it was shifted to an insur-ance company that guaranteed principal and interest, except for upto 20 percent of each account that could be shifted to an equityfund. Contributions are now $3 per hour (tax deferred), and eachaccount is entirely self-directed through a telephone or Web-based


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interface offering a choice of six funds with various levels of risk.It must be remembered that unions are democratic organizations,

with officers elected by secret ballot, and decisions made at openmeetings by majority vote. That democracy is statutorily protectedby the Landrum-Griffin Act (officially the Labor-Management Report-ing and Disclosure Act). The act contains a bill of rights for unionmembers, including equal rights to participate in elections, rights ofspeech and assembly, the right to a secret ballot on dues, fees, andassessments, and protection of the right to sue.78 These rights are notabstractions but are exercised daily. Local union members always in-voke the right to a secret ballot on “money matters.” They have beenoutspoken in their demands for higher returns on plan funds, andconsistently persistent in their questioning of plan trustees. In thissetting, joint trusteeship has functioned well.

Conclusion

Union welfare funds began about a hundred years ago as a collectiveeffort to ameliorate the worst effects of hard, dangerous, and steadyphysical labor—sickness, injury, disability, premature aging, and earlydeath. The funds were created voluntarily by and for the workers andpaid for out of pocket, most often through assessments they placedon themselves through their labor organizations. These funds weremanaged by elected union officers and by specially elected or ap-pointed trustees.

The same process continues today in multiemployer funds, withtwo differences: The assessments the employees place on themselvesare separated from taxable wages and paid to the funds directly fromthe employees’ weekly earnings before taxes, and the trustees of thefund now include representatives of the employers as well as the em-ployees. Direct payment by employers of assessments to the funds wasinitiated early on by unions to ensure and simplify collection, but thecurrent form is determined by the requirements of the tax code toattain deferred-tax or tax-free status. Joint trusteeships were imposedby Section 302 of Taft-Hartley, and, along with the fiduciary and other



requirements of ERISA, they have had the effects of legitimizing, stabi-lizing, and professionalizing fund management. Adding employee trust-ees to corporate funds could be expected to have the same effects.

Pension plans by their nature are collective. They are a form ofspreading the risk among a group of workers, a form of social insur-ance. The pooled funds provide for the possibility that some may bedisabled or die young, while others may live for many years in retire-ment. The thrifty and spendthrift alike make contributions to ensurethat all will have a reasonable income at retirement. But the UnitedStates seems to be turning away from this approach to one of indi-vidualized private savings.79 Participation in defined-benefit plans isdecreasing. Self-managed defined-contribution plans and IRAs areincreasingly fashionable.80 Privatization of Social Security has beenproposed. Instead of “An injury to one is an a injury to all,” the newslogan seems to be “An injury to you is an injury to you.” Individualstake their chances on financial catastrophes, which do not restricttheir occurrence to the unworthy.

In the face of this movement toward privatization, a proposal forjoint trusteeship of all pension funds may seem quixotic. If all wehave are individual accounts, it is pretty clear whose money this is,and who is to manage it. But this new grand experiment with old-agesecurity has just begun. Experience may demonstrate once again thewisdom of a collective approach.

Notes

1. Pensions and Investments (October 19, 1998).2. In 1993, 11.2 percent of the private nonagricultural workforce were members

of unions; in 1998, 9.4 percent were unionized (U.S. Department of Labor, Bureauof Labor Statistics, Current Population Survey, January 19, 2000).

3. I enclose “open shop” in quotation marks because I came to the same conclu-sion as did the United States Commission on Industrial Relations in 1915: that theopen shop is in reality closed to union members and that the open shop employerbelieves that union rules interfere with rights that are his by law and custom. SeeLuke Grant, The National Erectors’ Association and the International Association ofBridge and Structural Ironworkers (Washington: U.S. Commission on Human Rela-tions, 1915). Even if union members are hired by an open shop employer, theyeffectively lose their rights as exercised on a union job.


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4. The Taft-Hartley Act of 1947 is officially known as the Labor ManagementRelations Act.

5. Pensions and Investments (June 10, 1996).6. The Sanders bill, H.R. 1277, 101st Congress, 1st sess., is identical to the Visclosky

bill.7. Murray Webb Latimer, Trade Union Pension Systems (New York: Industrial Re-

lations Counselors, 1932), and the companion volume, Industrial Pension Systems inthe United States and Canada (New York: Industrial Relations Counselors, 1932).Other sources include William Graebner, A History of Retirement: The Meaning andFunction of an American Institution, 1885–1978 (New Haven: Yale University Press,1980); Jill Quadrango, The Transformation of Old Age Security: Class and Politics inthe American Welfare State (Chicago: University of Chicago Press, 1988); CharlesDearing, Industrial Pensions (Washington: Brookings Institution Press, 1954); AliciaMunnell, The Economics of Private Pensions (Washington: Brookings Institution Press,1982). Especially helpful was Steven A. Sass, The Promise of Private Pensions: The FirstHundred Years (Cambridge: Harvard University Press, 1997).

8. Building and Construction Trades Dept., AFL-CIO, The Builders (1983), p. 160;Sass, The Promise of Private Pensions, p. 122.

9. Latimer, Trade Union Pension Systems, p. 21.10. Ibid., pp. 26, 31–32, 120. Latimer could not have guessed, but the IBEW plan

(described below), absent the insurance aspect, is basically the form in whichMultiemployer plans blossomed under Taft-Hartley Section 302.

11. Law and Labor 13 (June 1931): 123–24.12. The most egregious of these practices continued in union plans well into the

1970s. With long vesting and minimum-hour requirements for vesting credits, itwas possible for a transient to work in a trade for many years without acquiring anypension rights. There was complete portability within funds, but not between funds.The use of temporary “permit” workers during boom periods further swelled thepension funds without adding concomitant liabilities. Break-in-service rules werealso used to forestall vesting. Today, spurred by ERISA and new leadership, many ifnot all plans have a “money follows the man” rule so that a transient may at leastaccumulate all his credits in one plan.

13. Latimer, Trade Union Pension Systems, p. 116.14. Sass, The Promise of Private Pensions, p. 124, citing E. K. Goodman, National

Union Benefit Plans (Washington, DC: U.S. Department of Labor, 1970).15. For a fascinating account of these events by a participant who later became a

leading First Amendment scholar and an architect of the constitutional right toprivacy (in Griswold v. Connecticut), see Thomas I. Emerson, Young Lawyer for theNew Deal: An Insider’s Memoir of the Roosevelt Years (Savage, MD: Rowman andLittlefield, 1991).

16. NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1 (1937).17. U.S. Bureau of the Census, Historical Statistics of the United States, Colonial

Times to 1957 (Washington: GPO, 1960), p. 98. These numbers have been subject toquestion and qualification, but they are at least a reasonable approximation andadequate for our purposes.

18. C. Wright Mills, The New Men of Power: America’s Labor Leaders (New York:Harcourt Brace, 1948), p. 44. This contemporaneous account by Mills, then a lead-ing American sociologist at Columbia, is an excellent source for the temper of thetimes.

19. See United States v. United Mine Workers of America, 330 U.S. 258 (1947).



20. Sass, The Promise of Private Pensions, p. 128; Elias Lieberman, Unions Before theBar (New York: Hardert Brothers, 1950), pp. 287–311.

21. U.S. Bureau of the Census, Historical Statistics, p. 99.22. Ibid., p. 125, percentages calculated from table data.23. Ibid., p. 691. In the House, the lineup was R—245, D—145; in the Senate, R—51,

D—45. Given the inability of Taft-Hartley’s sworn opponents to repeal or amend it,it is interesting to note that there was a very narrow window of opportunity for itsproponents. In the next election these numbers were more than reversed.

24. National Labor Relations Board, Legislative History of the Labor ManagementRelations Act, 1947 (Washington: GPO, 1948), pp. 922–23 (hereinafter LegislativeHistory). The House vote of 331–83 to override followed immediately after the read-ing of Truman’s message by the clerk.

25. CIO Convention Proceedings (1947), p. 5.26. Fred A. Hartley Jr., Our New National Labor Policy (New York: Funk and Wagnalls,

1948), pp. 92–93.27. United States v. Ryan, 350 U.S. 299 (1956), 304–5.28. Ryan is cited in Arroyo v. United States, 359 U.S. 419 (1959), p. 426. Both are

cited for the history of Section 302 in John A. McCreary Jr., “The Arbitrary andCapricious Standard Under ERISA: Its Origins and Applications,” Duquesne Law Re-view 25 (1985): 1033, 1036–38, who is then cited for 302’s history by Jonathan P.Heyl, “Bedrick v. Travelers Insurance Co.: The Fourth Circuit’s Continued Attemptto Work with the ‘Doctrinal Hash’ of the Standard of Review in ERISA Benefit-Denial Cases,” North Carolina Law Review 75 (1997): 2382, 2392, 2427.

29. Hartley, Our New National Labor Policy, pp. 12–13.30. Legislative History, pp. 320, 749, 753. The text read so as to prohibit payment

to labor organizations or any fund or trust established by a labor organization ifthat organization “either alone or in conjunction with any other person, exercisesany control” over disbursements.

31. Hartley, Our New National Labor Policy, pp. 7–21.32. Ibid., p. 20.33. Ibid.34. Legislative History, pp. 755, 782, 869, 1311.35. Ibid., p. 751, italics added.36. Ibid., pp. 320, 869, 458, 755, 1311 (the last by Senator Taft).37. Ibid., p. 751.38. Gomez v. Lewis, 292 F. Supp. 560 (Western District Pennsylvania 1968).39. Hartley, Our New National Labor Policy, pp. 65–66, 80.40. Legislative History, pp. 1312, 1320, 1321, 1322, 1524 (italics added).41. H. Robert Bartell Jr. and Elisabeth T. Simpson, Pension Funds of Multiemployer

Industrial Groups, Unions, and Nonprofit Organizations, occasional paper 105 (Cam-bridge, MA: National Bureau of Economic Research, 1968). Sources of data includereports filed with the U.S. Department of Labor and New York State, and a studyconducted by Bartell for the NBER.

42. Study by the consulting firm of Martin E. Segal, cited by Rep. Peter Visclosky,135 Congressional Record H5984–05, H6233 (1989).

43. Other than cases cited, sources for this section include Benjamin Aaron, LegalStatus of Employee Benefit Rights Under Private Pension Plans (Homewood, IL: Pen-sion Research Council, 1961); Edwin W. Patterson, Legal Protection of Private PensionExpectations (Homewood, IL: Pension Research Council, 1960); and Note, “Contrac-tual Aspects of Pension Plan Modification,” Columbia Law Review 56 (1956): 251.


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44. 53 N.Y.S. 98 (N.Y. App. Div. 1898).45. 75 N.Y.S. 386 (Sup. Ct. 1902)46. 140 F.2d 786 (8th Cir. 1944).47. 160 N.Y.S. 2d 716 (1957).48. 53 N.Y.S. 98, 100.49. Rose Transit Co. v. City of Portland, 271 Or. 588, 592–93 (1975) (internal cita-

tions omitted).50. Hunter v. Sparling, 87 Cal. App. 2d 711, 725–26 (1948). See also Langer v. Supe-

rior Steel, 105 Pa. Super. 579 (1932).51. deRhode, “Pensions as Wages,” American Economic Review 3 (1913): 287, cited

in Bradley R. Duncan, “Judicial Review of Fiduciary Claim Denials Under ERISA: AnAlternative to the Arbitrary and Capricious Test,” Cornell Law Review 71 (1986): 986,1013.

52. John H. Langbein and Bruce A. Wolk, Pension and Employee Benefit Law, 2ded. (Westbury, NY: Foundation Press, 1995), p. 16.

53. Ibid., pp. 548, 607. Langbein and Wolk do cite one dissenter who claims thedeferred-wage theory doesn’t fit defined-benefit plans because benefits are forfeit-able until minimum service and vesting requirements are met. Ibid., p. 16, citingDennis E. Logue, Legislative Influence on Corporate Pension Plans (Washington: Ameri-can Enterprise Institute, 1979). But this could also be taken as an argument forimmediate vesting.

54. Hebron v. Hebron, 456 N.Y.S. 2d 957, 961 (Sup.Ct. 1982).55. Howell v. United States, 775 F. 2d 887 (7th Cir. 1985).56. Internal Revenue Service, Revenue Rulings 81–36; Revenue Rulings 81–35;

Revenue Rulings 77–462.57. Howell, 887, 890.58. 77 NLRB 1, enforced, 170 F.2d 247 (7th Cir. 1948), cert. denied, 336 U.S. 960

(1949).59. NLRA Section 9(a).60. 77 NLRB 3–7.61. The act does not require that the parties reach agreement but, rather, that they

bargain in good faith.62. 77 NLRB 13.63. Sass, The Promise of Private Pensions, pp. 132–42.64. Ibid., p. 142.65. Subcommittee on Labor-Management Relations of the House Commission

on Education and Labor, Hearings on H.R. 2664, 101st Congress, 1990, 2 (hereinafterHearings) (opening statement of Chairman William L. Clay).

66. Daniel Fischel and John. H. Langbein, “ERISA’s Fundamental Contradiction:The Exclusive Benefit Rule,” University of Chicago Law Review 55 (1988): 1105, 1135–36, where they say, “[A] management selected trustee for a multiemployer plan spon-sored by a mobster dominated union risks labor trouble or worse if he defies thewishes of the union. Such trouble is directed solely against him or his firm (notagainst his competitors in the industry), whereas he suffers no competitive disad-vantage if he lets the union selected trustees call the shots. It is not surprising,therefore, that the Jimmy Hoffas of the union world tend to get what they want inmultiemployer plan administration despite the nominally neutral board structure.”Sass, The Promise of Private Pensions, pp. 180–83; Richard Blodgett, “Union PensionFund Asset Management,” in Twentieth Century Fund, Abuse on Wall Street: Con-



flicts of Interest in the Securities Markets (Westport, CT: Quorum Books, 1980), pp.320, 333–34.

67. Subcommittee on Labor-Management Relations of the House Committee onEducation and Labor, Oversight Hearings on the Role of Pension Funds in CorporateTakeovers, 101st Congress, 1989.

68. Another catalog of abuses in corporate plans can be found in John Brooks,“Corporate Pension Fund Asset Management,” in Twentieth Century Fund, Abuseon Wall Street, pp. 224–66.

69. Hearings, 11.70. Ibid., 68–78 (testimony of David George Ball, assistant secretary for pension

and welfare benefits, U.S. Department of Labor); and synthesis of other testimonyand congressional debate.

71. See data in Latimer, Trade Union Pension Systems, pp. 96–97; Bartell andSimpson, Pension Funds of Multiemployer Industrial Groups, pp. 6–16; Hearings, 338–47 (testimony of Jack VanDerhei, EBRI); ibid., 34–48 (report on Joint Pension Trustee-ship: An Analysis of the Visclosky Proposal, Congressional Research Service).

72. Date compiled by SEI Resources, Chicago, cited in Pensions and Investments(March 8, 1996). It remains to be seen whether the shift to more aggressive risk-taking is wise in the long run.

73. Only vested benefits are insured. Accrued but unvested benefits are unin-sured, as are benefits that become nonforfeitable solely on account of the termina-tion of the plan. Langbein and Wolk, Pension and Employee Benefit Law, p. 831.

74. In the fall of 1998 I served as an intern with the NLRB and helped to supervisea number of elections. Although the board agents took exceptional care to main-tain “laboratory conditions,” there were often nit-picking exceptions filed by theloser.

75. However, public employees are widely represented on their plans’ boards.Hearings, 188–89, 192 (testimony of Morton Barr, president, Communications Workersof America).

76. See discussion in Inland Steel, 77 NLRB 27–29; Twentieth Century Fund, Abuseon Wall Street, pp. 254–59.

77. This section is based on many years’ experience as a plan participant andunion official. Among other duties, I set up the computer system used to manage alocal union’s funds, and authored the database application used to track employeehours, company hours, and stamp purchases, and to calculate allocations to funds.

78. U.S. Code, vol. 29, secs. 411, 412 (2002).79. Sass, The Promise of Private Pensions, pp. 227–53.80. Langbein and Wolk, Pension and Employee Benefit Law, pp. 52–57.

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The Case for Joint Trusteeship of Pension Plans

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