PENSION FUNDS: Regulations Needed to Guard Them

FOR U.S. industry—and labor—a big new problem is the sudden wealth of unions. Since 1949, labor's net worth has quadrupled to $12 billion, and dues alone from nearly 18 million members are adding $592 million a year. Unions are now rich enough to own banks and insurance companies, finance housing and put millions in bonds and common stocks. The bulk of their worth is in welfare and pension funds. They now cover 75 million Americans and total about $51 billion. But management controls 90% of the funds, which are growing by $7 billion a year, mainly through $5 billion contributed by employers. Only $8.6 billion is in funds jointly run by union-management boards or by unions alone. Nevertheless, as a result of embezzlement and mismanagement in union-dominated or jointly run funds, the question has been raised whether all the funds should be policed by the U.S. Government.

Skulduggery in the funds is nothing new. As far back as 1954, a Senate investigation of 29 jointly run welfare plans revealed "shocking abuses, such as embezzlement, collusion, kickbacks, exorbitant insurance charges and various other forms of malfeasance." The committee later showed that thievery was not the only problem. "Countless millions," said the committee, had been lost in union or jointly operated funds by "mismanagement, lack of know-how, waste, extravagance, nepotism, a lack of criteria for sound operation." They cited not only neglect of actuarial and investment principles in setting up welfare plans, but also "an almost complete lack of routine accounting to the beneficiaries." They also criticized plans that invested as much as 100% of union welfare and pension funds in the stock of a company with which the union bargained.

Both labor and management have belatedly recognized that all funds have to be run a lot better. As a result of scandals in the funds of some affiliates, the A.F.L.-C.I.O. issued a new code of fund ethics, invoked it last month to oust the teamsters' (TIME, Dec. 16), bakery and laundry workers' unions. In addition, the million-member International Association of Machinists two years ago joined U.S. Industries, Inc. in organizing the Foundation on Employee Health, Medical Care and Welfare Inc. because, says Machinists' President A. J. Hayes, "infinitely more money is being wasted in welfare and pension programs than is being stolen." The foundation has already shown that a welfare fund can save thousands of dollars simply by smarter management, e.g., competitive bidding on health-insurance contracts. Corporations have also been at fault. Vice President Frank B. Cliffe, of H. J. Heinz Co. and pension expert for the U.S. Chamber of Commerce, lays heavy blame for abuses in jointly run welfare plans on neglect by management, which "thought its obligations ended with the payment of its contributions."