How Bosses Manufacture a Pension Crisis, and Workers Dismantle It
Any worker in the public sector over the past couple of decades has no doubt experienced “disaster capitalism.” We saw it in New Orleans, when the city decided to use the devastation of Hurricane Katrina to dismantle traditional public schools and teachers unions. We saw it this year when Massachusetts Governor Baker used a massive snowstorm to advance a bill that could very well lead to the privatization of the MBTA’s bus system.
But for those looking to turn public services into profit centers, “disaster capitalism” is not as reliable as they would hope. What happens when your city cannot rely on Mother Nature or some Act of God to provide such a disaster? Well, you manufacture one, of course!
That is exactly what is happening in Grand Rapids, Michigan, which has recently remade itself as Michigan’s “destination city.” Billionaire families like the DeVos clan teamed with local politicians to invest in public art, grow the healthcare industry, expand cultural institutions and market the city to millennials and conference-goers.
Sounds great, right? Sure, if you can afford to enjoy it. Grand Rapids’ poverty rate is an astounding 26%, and few leaders seem to care. In one emblematic meeting this year, the Board of Directors for the city’s transit system—The Rapid—voted to raise fares on bus riders by 16%, to eliminate the pensions of more than 300 transit workers, and to raise the CEO’s salary to $203,000.
Fortunately, they are not getting away with it. Amalgamated Transit Union Local 836, which represents most of The Rapid’s employees, has forged a coalition of workers, transit riders, students, labor unions, and elected officials to fight back. But how did it get this far to begin with?
When Local 836 and The Rapid began bargaining in December, 2014, the agency offered a take-it-or-leave-it ultimatum. One way or another, they were determined to terminate the modest defined benefit pension that their employees and retirees depend upon. What was their justification?
First, they claimed the plan’s unfunded liability was simply too dangerous to the agency’s long-term fiscal health. For months, the agency claimed it neared $2.6 million. In other words, the pension was about 80% funded. Ratings agencies like Fitch consider a plan funded at 70% or higher to be “adequate.” Nonetheless, the agency insisted on terminating the defined benefit plan and transferring assets to a defined contribution plan. Unfortunately for the agency, such a transfer would violate the Internal Revenue Code.
As the June 30th contract expiration date neared, the agency changed its tune. They proposed freezing the defined benefit plan for new hires. A well-informed union bargaining team pointed out the obvious: a defined benefit plan is strong because it relies on diffusing market risk across a large pool of participants and the employer. If the flow of participants is cut off, the plan will eventually collapse.
After the CBA expired, the parties were required by Michigan law to enter into a mandatory extension that could last anywhere from 60-120 days. That is when the real crisis creation got underway. The Rapid’s negotiators would only accept the bare minimum, a 60 day extension that would force a showdown by August 29th. Then, they refused to agree to bargaining dates before August 17th.
In early August, Local 836 members launched a true fight-back campaign. Members held rallies topping 100 participants. Heartfelt testimony from family members brought tears to the eyes of City Commissioners. The few bold politicians remaining in western Michigan, like former gubernatorial candidate Mark Schauer, stepped up to the plate, writing op-eds and making public statements supporting the right to a secure and dignified retirement.
Workers on their personal time began leafleting riders at bus stops and stations; The Rapid threatened to have them arrested and terminated. The International union backed them up, filing a First Amendment case in federal court that has so far resulted in a temporary restraining order and a preliminary injunction against the agency.
With the heat turned up, the bargaining sessions yielded little progress but allowed the union to make its case to the public. Their pension accounted for less than 2% of The Rapid’s budget. The Rapid itself was a well-funded agency facing no financial crisis. The six cities that contribute to the agency all saw revenue increase in the past year. ATU members had stood side-by-side with the agency to fight for a transit millage the year before, which passed by less than 150 votes and brought new funds into the system. There was no crisis. This was not about finances but about ideology.
The Rapid’s Board agreed to extend the contract, but only until August 31st. Rather than accept the union’s unprecedented offer of allowing members to contribute to the plan, the agency changed its tune once again. Closing the liability, it seemed, was no longer the goal, but “shifting the risk” was paramount.
Union negotiators did their homework, finding that the plan’s actuary had assumed, for example, that 50% of employees retire early. The agency acknowledged that the real number was closer to 10%, an error that inflated the unfunded liability by nearly a quarter million dollars. Nonetheless, the agency demanded that the union provide a proposal before new actuarial numbers could be calculated. Negotiations broke down immediately, and the contract extension expired.
While the agency began implementing union-busting tactics like refusing paycheck deduction of dues, it also changed its argument for a third time. This wasn’t about a liability or market risk. Instead, as one Board member put it, their real goal was to move members from a “terrible” pension to a defined contribution plan that could produce huge dividends in the market for employees.
No one bought it. Members knew the numbers: defined benefit plans outperform defined contribution plans. So they organized a “funeral for the middle class” that united their struggle with other workers in town. One weekend, 100 students from nearby Grand Valley State University’s United Students Against Sweatshops (USAS) chapter organized a “flash mob” to interrupt the city’s major art festival and show support for Local 836. Soon after, U.S. Senator Bernie Sanders penned a solidarity letter, noting that he was “proud to stand alongside the working families of Grand Rapids and to remind their management that pensions are a promise!” The letter thrilled members, who were frustrated with the silence of many elected officials, including Democratic Senators Debbie Stabenow and Gary Peters.
As of press time, the fight by ATU Local 836 continues in Grand Rapids. Rather than negotiate concession after concession, union leaders out-researched and out-smarted the agency’s hired hands. Rather than buy in to the anti-pension trend, rank-and-file members joined forces and built a community coalition that not only defends pensions, but the right of their riders and all of their neighbors to benefit from the city’s prosperity.
Many thanks to the author for sending this article to Portside.
Todd Brogan works for the Amalgamated Transit Union