Unions Reprimanded by the US Department of Labor

By May 5, 2005Labor Unions

We so hate to pile on, as these are pretty dark days over at the AFL-CIO, but these guys just keep bringing hardship on themselves. Most major papers reported today that the Department of Labor (DOL) wrote a letter to the AFL-CIO, warning them that union-run pension funds may be dangerously close to breaking (or actually breaking) the law by threatening to withdraw their money from firms that support the President’s Social Security plan. The letter was sent from respected career Labor Department official Alan Lebowitz to AFL-CIO General Counsel Jon Hiatt — brother of Washington Post editorial page editor Fred Hiatt, by the way.

We thought this was pretty serious stuff, but it’s really brought home when you see the letter itself. Take a moment to read it and we think you’ll agree. Remember that this is from the government, an entity not prone to adjectives or hyperbole. In the first paragraph they use the words, “grave concerns”, and echo, “The Department is very concerned…” again on the same page.

Here are some highlights from this extraordinary letter:

“…plan fiduciaries must act solely in the interests of participants and beneficiaries…”, the DOL scolds. Do they think the AFL-CIO is about to change its standard operating procedures and put its members’ interests first?!?

“A fiduciary may never increase a plan’s expenses, sacrifice the security of promised benefits, or reduce the return on plan assets, in order to promote its views on Social Security or on any other broad policy issue.” Ouch!

As for the AFL’s apparent assertion that this debate could have significant impact on the national economy, the DOL replies, “If a fiduciary could characterize an ‘educational’ expense as ‘plan administration’ merely by positing some connection between the particular policy at issue and the broad economic interests of ERISA-covered plans, there would be virtually no limit to the range of such expenses that would be permissible.”

Finally, the DOL closes: “…the Department reiterates its view that plan fiduciaries may not increase expenses, sacrifice investment returns, or reduce the security of plan benefits in order to promote collateral goals. A fiduciary’s consideration of its current service providers based solely upon the service provider’s views on Social Security would raise grave concerns [there’s that phrase again] about the prudence and loyalty of the fiduciaries’ actions.”

It’s quite a letter. However, even more remarkable was the AFL-CIO’s response. For a group known for its bravado and chest-thumping, their associate general counsel was quoted in a NY Times story as saying sheepishly that they agreed with the DOL’s main principles about fiduciary responsibility. Even they knew they were over the line.

It’s all just so much arrogance, so much thuggishness, thinking they can push around anybody who doesn’t agree with them, and use their massive pension funds — full of their members’ hard-earned money — to extort whatever behavior they seek, members’ interests be damned.

Bravo to the Labor Department for taking a stand against the desperate and heavy-handed tactics of the AFL-CIO.