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Why the Decrease in Unions and Defined Benefit Retirement Plans Hurts Us All

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"Oh, you can't scare me, I'm sticking to the union
I'm sticking to the union, I'm sticking to the union
Oh, you can't scare me, I'm sticking to the union
I'm sticking to the union 'til the day I die"

-- Woody Guthrie

In 1975, 22.2 million workers in the United States belonged to a labor union. By 2013, the number had dropped to 14.3 million, a 97-year low despite a rise in the overall labor pool. According to TIME magazine, if you only looked at private sector employees and not people working in government, union members accounted for only 6.6 percent of the workforce.

The number of Americans in a union is decreasing each year.

In 1979, 38 percent of private sector employees in the United States had a Defined Benefit Pension Plan. By 2011, the number had dropped to 14 percent and going down each year.

A defined benefit pension plan is one where someone gets a set benefit at retirement for a period of years or the rest of their lives. For example, an employee might retire at age 65 with $2000 a month for the rest of their lives.

The pension is calculated by how much they made, how much was contributed on their behalf and how many years they worked for a company.

The pension gives an incentive for people to spend their entire life at one profession or one company. It also gives society a terrific benefit. It makes sure that the employee does not run out of money.

Most successful retirement programs, like social security, are based on the defined benefit model. No successful plan is based on the 401k model, which most employees get today.

Is there a correlation between the drop in unions and the drop in defined benefits plans? It certainly seems like it. A 2003 study by Lawrence Mishel and Matthew Walters showed that 71.9 percent of union workers received a pension benefit while only 43.85 percent of non-union employees received the same benefit. If the gap was that wide in 2003, it has to be dramatically bigger now.

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I grew up with a certain reverence for the benefits of unions. My grandmother and mother were members of the Teamsters Union when they worked at a potato chip factory. My nephew is a member of a labor union now. In grandma's case, it seemed like a good deal for employer and employee. Grandma worked at the potato chip factory for over 30 years. She was off for an entire year after breaking her neck, but other than that, she never missed a day or was late the entire time.

Her benefits paid her while she recovered from the broken neck, and she was able to retire the day that she turned 62. She was poor and did not have a fancy retirement lifestyle, but did not have to cut back to retire either. Nor, did she have to work to 65 or 70. She stood on her feet loading boxes, and I doubt she could have done that much longer. Being a union member worked well for her.

My mother saw the good and the bad of being a union member. She was a union representative. Management and employees were four cents (not four dollars, but four cents) apart and Mom was vocally opposed to going on strike, but a bitter strike took place. I was a preteen and never got all complete details, but Mom was critically injured during the strike. During her stay in the hospital, she decided to go to nursing school and leave the factory.

She came back to work for another year to earn enough money to go to nursing school. The strikers got their four cents, but at a big cost. The company had been very generous with free snacks, Christmas parties, picnics and things of that nature. All that stopped. Company and employees saw each other as enemies. It didn't work for anyone. The factory has been gone for decades and the brand is owned by a place that remarkets old brands.

Common sense would have allowed the union and management to work as a team, instead of as adversaries. Many unions and managements work well together, but there are others who have been caught up in the same disease that plagues Washington. Some unions have become large and bureaucratic and more interested in holding onto power than making real accomplishments. Since most are based in Washington, too many have been caught up in what is going on "inside the beltway" instead of out on Main Street where the rest of us live.

Thus the decline of unions have been met with a collective "who cares" by the American people. Republican politicians from Ronald Reagan to Wisconsin Governor Scott Walker have been able to score political points by "breaking" government related unions and the public has generally bought in.

I can't remember the last time that the public has really rallied to support a union. It was a cardinal sin in my family to ever cross a picket line. I only did once, when Eastern Airlines was on strike, and felt so bad about it that I doubt I'll ever do it again.

Fewer and fewer people feel that way anymore.

There is a certain resentment from people who see union members retiring at age 50 while they are decades away from retirement themselves. This is especially true as a large number of union members and people getting defined benefits are government employees. Even worse is that many defined benefit plans are not funded properly and others are not fair in how they dispense benefits. Government employees can jump to a high paying job at the end of their career and get a pension much higher than someone who does not.

Having pointed out some of the ills of unions and defined benefits, the one thing I am certain of is that their decline is bad for America.

Unions have been a big reason that America has had a middle class. Union leadership has fought hard for good benefits and defined benefit retirement plans as they want the union members and their families to have their basic needs met.

It's been a good tradeoff. A union employee could know at a young age that they would work for one stable company for their entire lives. They would have insurance when they were sick, they would have the confidence to buy a house and raise a family, and they knew they could have a good retirement, no matter what else went on in the world. A company would know that they had a lifetime employee and could count on that in their planning.

As defined benefit plans are going away, so is the safety net for older Americans. Most bankruptcy filers are under age 54, but there is a steady rise in bankruptcies of people over age 55.

The concept of the 401k plan has been bad for America. It forces people who are not trained in investments to make investment choices, often from a limited selection. It forces people to ride stock market waves where they have no control of the action. It doesn't compel people to stay with an employer as longevity does not score any points like it does in a defined benefit plan.

The biggest problem is that we are setting ourselves up for a baby boom generation who are going to run out of money during their senior years. A simple option to protect lifetime benefits would be for people to roll their money 401k plan into an immediate annuity that would pay them, and often a spouse or family member, for the rest of their lives.

As I noted in a previous Huffington Post blog, Dr. Richard Thaler, a professor of economics and behavioral science at the University of Chicago, said that enough people don't buy annuities. I said in that article Thaler suggested that people seemed to consider an annuity a "gamble" that they would live to an old age instead of realizing that "the decision to self-manage your retirement wealth is the risky one." As people live longer than previous generations, they are more likely to run out of money before they run out of time on the earth.

Defined benefit plans can be complicated to set up and government ought to be encouraging them and making them simpler to put into place.

As we celebrate Labor Day, it needs to be more than a day off of work. Labor unions came along a century ago when workers were being exploited and needed a way to counteract management excess and greed. We've lived through decades of Wall Street greed and excess, and no one seems to be counteracting them.

In a world economy, it's a lot tougher for labor unions to be effective. For non-skilled labor, a company can simply move to a country that has lax labor practices. If we reach a point where the only union members are government workers, we will have a day when resentful voters will rise up and throw them out. Government unions need private sector unions to make it and vice versa.

Labor leaders need to be better communicators about how they can benefit all Americans, not just their members. And most of all, labor unions need to lead the fight to make sure that defined benefit pension plans are a permanent part of the economy.

All of my adult life, I've worked with injured people, lottery winners and others who receive large sums of money at once. At least 70 percent wind up blowing it in five years. A 401k plan is too much temptation for people to spend money quickly and most of them will.

About 10 years from now, I can see a nation of aging baby boomers living on social security and absolutely nothing else.

This Labor Day is a good day to start the fight against that happening.

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Don McNay, CLU, ChFC, MSFS, CSSC is a certified structured settlement annuity consultant, a best-selling author and the founder of McNay Consulting (www.mcnayconsulting.com) and McNay Settlement Group (http://www.mcnay.com