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."

Losses cannot be cut by self-policing alone. One reason is that virtually no laws apply to the control of welfare and pension funds. To fill the gap, Democratic Senator Paul H. Douglas introduced a bill to police the funds that has wide bipartisan support. The bill calls for registration with the Labor Department of every welfare and pension plan in the U.S., requires full disclosure of fund finances in some 250,000 annual reports, provides criminal penalties for failure to do so. It is solidly backed by the Administration. Says Labor Secretary James P. Mitchell: "These private plans are so important for the security of Americans that their operations have become a matter of public concern."

Nevertheless, the bill is hotly opposed by many businessmen. The National Association of Manufacturers notes that scandals have centered in labor and jointly controlled welfare funds, insists that trusteed company pension plans should be left alone. The American Bankers Association feels that federal regulation of all pension plans is unnecessary interference with the bankers who have run them for years with few complaints. The U.S. Chamber of Commerce argues that full disclosure of pension investments could unbalance the stock market, that prices would gyrate as the public followed the big funds' buying and selling.

The Administration, along with many fund experts, disagrees. Many experts feel that the field is far too big to leave uncontrolled (only six states have amended their insurance laws to cover the funds), and that worries about the disclosure of fund investments on the stock market have little foundation. Mutual funds, with some $10.5 billion in stocks and bonds, are required to publish their investments at least twice a year, and there has been no visible damage to the market. So far, the Administration has potent support from A.F.L.-C.I.O. President George Meany, who is in favor of full disclosure of the finances of funds, including those run by management as well as by unions.

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