WASHINGTON — Faced with a declining defined benefit system and half the working population not covered by any employer-provided retirement plan, officials at the AFL-CIO and the Service Employees International Union have been developing separate foundations for new hybrid pension plan models.
A hybrid plan typically combines what its designers consider the best of defined benefit and defined contribution plans. One example is a cash balance plan, although sources say the AFL-CIO's and SEIU's concepts are not modeled after cash balance plans.
On Aug. 8, the AFL-CIO, Washington, issued five principles for retirement income policy:
• Financing and risk should be allocated equitably among government, employers and workers.
• Every worker should have the opportunity to retire at 65 with at least 70% of pre-retirement income.
• Retirement benefits should be portable.
• Defined contribution plans should be structured to serve the interest of workers.
• Participants should be represented in the governance of their plans.
Damon Silvers, associate general counsel for the AFL-CIO, said in an interview: "Our current system is failing. It functioned well for the work force 25 years ago. By the time it becomes apparent to the majority of employees, it will be too late."
Neither Stephen Abrecht, director, benefits and capital stewardship program at the SEIU, nor Andrew Stern, president of the SEIU, would return numerous calls requesting comment for this story. But sources said the SEIU proposes a hybrid plan model that:
ccovers the 50% of the work force not now covered by traditional plans;
• offers portable accounts;
• pools investment risk;
• pays benefits primarily in annuity form;
• requires employer contributions;
• minimizes costs; and
• is simple to communicate.
In perhaps the most controversial principle, the SEIU would give participants or their union representatives the power to name fiduciaries that decide investment policies, select service providers and monitor investment performance.
The SEIU — which represents 1.8 million health-care workers in the U.S., Canada and Puerto Rico — broke away from the AFL-CIO in July 2005. Mr. Silvers said the retirement policy documents of the two union groups were created separately.
Of the SEIU's principles, Mr. Silvers said, "Their principles relate to the same set of problems. We understand that they would have their own document … but that doesn't preclude that we wouldn't team up with them. It wouldn't surprise me at all. On the Hill we could work together; it's likely that we will. But as of today, we haven't signed off on theirs and they haven't signed off on ours.