READER'S DIGEST


Who's Plundering Union Pensions?

Union retirement funds and welfare plans hold billions of dollars in trust for American workers. Or do they?

BY Eugene H. Methvin

IN LAS VEGAS, a member of the Hotel Employees and Restaurant Employees International Union (HERE) found himself in excruciating pain from an abscessed tooth. When he visited the dentist provided under HERE's mandatory-and costly-health plan, he was told he had to pay $92 for Novocain. The man had to borrow the money from fellow workers before the dentist would end his agony. A U.S. Department of Labor investigator later found the anesthetic cost the dentist about $6-and that much of the money from the union's dental plan was being siphoned off by the Mafia.

In Los Angeles, retired construction worker, Walter Brown, 70, and his wife squeaked by on a $488 monthly Social Security check. Had it not been for church charity, they would not have eaten regularly. Brown had worked toward his Laborers International Union pension for more than 14 years, but he received nothing.

Then in 1987 a federal court ruled that Brown and some 2000 other former LIU members were entitled to $20 million in pension payments. Evidence showed the Laborers fund trustees had so rigged the rules that only one union member in 20 received anything for his retirement.

Shark Bait. These scandals reflect Uncle Sam's tragic failure to adequately police the nation's 900,000 pension funds and 4.5 million welfare plans. Together, they hold $1.8 trillion in trust for 76 million American workers, who contribute some $200 billion more every year.

Federal audits and criminal investigations demonstrate that most plans are honestly run. But an alarming minority, according to the Labor Department's acting Inspector General Raymond Maria, are under assault by "racketeers disguised as attorneys, accountants, bankers, investment advisers, and such service providers as doctors and dentists." One rank-and-file Laborer put it this way: "The mobsters don't kill to steal anymore. They do it with lawyers-and we don't find out for years that we've been robbed."

The funds attract sharks great and small. Buddy Leroy Watson, a real-estate broker, was prosecuted by the Justice Department and sentenced for embezzling $60,000 from a profit-sharing plan he administered for five ice-cream-parlor employees. And last year Mario Renda, president of a major brokerage firm, First United Fund, was sentenced to four years for helping bilk $14 million from Teamster and Sheet Metal Worker pension plans.

By far, the worst piracy occurs among the funds run by the "Bad Four"-AFL-CIO unions dominated by the Mafia (the Teamsters, Laborers, Longshoremen, Hotel and Restaurant Employees). These internationals control about a third of the assets of the nation's 7200 multi-employer funds-collectively bargained plans funded by multiple companies and managed by a labor/management board.

Unfriendly Merger. Jimmy Fratianno, a Mafia chieftain who specialized in labor racketeering, held a Capitol Hill committee rapt as he described the Mob's techniques: "You find out who controls the money. Then you see if you can make a deal. If that doesn't work, you try threats. And if all else fails, you break the guy's leg-or worse."

For sheer grandiosity, nothing equals the Chicago Mafia's grab for nationwide control of both the Laborers and the Hotel and Restaurant Employees trust funds. In February 1977, Al Bramlet, corrupt boss of HERE's Las Vegas Local 226, was murdered; his killers confessed to a contract slaying. Bramlet had resisted Mob orders to merge his local's welfare fund with the syndicate-controlled national fund. Bramlet's successor went ahead and carried out the merger.

Then, three years later, the Labor Department's Office of Labor Racketeering uncovered a nationwide pattern of plunder in HERE's dental plans, stretching back to the Chicago Mob. For its big locals in Las Vegas and Atlantic City, HERE sponsored dental plans with exorbitant administrative costs, amounting to about 45 cents out of every dollar. Said one expert, "When administrative costs get above ten percent, you ought to give them a mask and a gun." In Las Vegas, Labor Department attorneys found that $3.3 million in HERE funds had been misappropriated.

Actual dental care was scandalous, as well. Plan operators hired dentists at meager salaries, thus attracting many inexperienced practitioners. Costs were routinely inflated. And often the work was so shoddy that, although union members were forced to buy the insurance, only a fourth used plan dentists, leaving the administrators to split huge profits with Mafia middlemen.

The Labor Department successfully sued HERE officers and contractors from both locals to recover $3.85 million and to ban them from handling the trust funds.

The curtain of silence parted more easily on the Mob's Laborers Union piracy. In sworn testimony Daniel Milano, an executive for a company providing dental and eye care to the union's Chicago and Miami locals, detailed years of kickbacks to Mob and union figures. Then a Miami jury convicted four men, including the son of Laborers president Angelo Fosco, of conspiracy to steal more than $2 million from the union.

Secret Stocks. Problems even arose at some of the country's largest and most respected investment firms. In 1981 John Giura, a partner of Chicago's Stein Roe & Farnham, was awarded a contract to manage $310 million in assets for the upstate New York Teamster pension and retirement funds. He invested the money through George and John Inserra, brokers in the Utica, N.Y., office of Shearson Lehman Brothers, Inc., who were friends of Teamster boss Rocco DePerno.

The Inserras collected $6.2 million in commissions on Teamster investments. To pay off their allies, they set up a secret account for stocks: those that lost value were bucketed into the Teamster pension fund, while quick profit-makers were kept for the insiders. Other payoffs were channeled through phony consulting fees.

Additional payola was tracked to the son of Long Island Teamster boss and Mafia associate John Cody. Another recipient was Anthony Bentro, a longtime Teamster henchman whom the FBI recorded conferring with Mafia bosses on how to split union kickbacks. (Giura was dismissed by Stein Roe.)

Anemic Watchdogs. In 1974, Congress passed the Employee Retirement Income Security Act (ERISA), creating safeguards for virtually all employee trust funds, union and nonunion alike. It assigned the Labor Department to be the "cop on the corner," with help from the Justice Department and Internal Revenue Service. Yet the Labor Department has fewer than 300 investigators-one for every 3000 pension plans and 15,000 welfare plans. While President Bush has asked Congress to provide 100 more investigators, these watchdogs lack adequate training in finance, accounting and the law.

Congress bears major responsibility for this fiasco. For years, neither the Senate nor House labor management subcommittee has seriously probed the looting of employee trust funds. They have also failed to bolster Uncle Sam's pitiful enforcement measures.

Since government efforts have been ineffective so far, workers will have to rely more on themselves to protect their trust funds. And under ERISA they can. The act gives pension-fund participants the right to obtain copies of their trust plan and its annual report (Form 5500) filed with the Labor Department. They also may appeal decisions on benefit amounts or eligibility to fund trustees, whose rulings can themselves be appealed to the federal courts.

To learn more about your pension rights, contact the Pension Rights Center (918 16th St., N.W., Dept. RD, Washington, D.C. 20006) and/or the Pension and Welfare Benefits Administration (U.S. Labor Department, Room N5658, 200 Constitution Ave., N.W., Washington, D.C. 20210). If you suspect fund piracy or mismanagement, gather the evidence and present your case to your regional Of fice of Enforcement, Pension and Welfare Benefits Administration, U.S. Labor Department.

Some have done so with great success. In Fairbanks, Alaska, Laborers local members Sam Goodman and Chris White spent weeks studying ERISA and investigating their union's $74,300,000 retirement fund. The National Bank of Alaska, they discovered, was paid to manage the money and loaned some of it to companies owned in part by two of its directors, including future governor William Sheffield. Such "self-dealing" is prohibited by ERISA, and the two union members petitioned the Labor Department to stop the bankers "from treating our pension funds as their private money machines."

Washington filed suit. The bank quickly agreed to buy back the loans, and the beneficiaries were assessed penalties.

Investment Follies. Along the Eastern Seaboard and West Coast, members of the International Organization of Masters, Mates and Pilots, part of the Mob-dominated International Longshoremen's Association, worried because their pension funds were going into shaky investments. In 1984 the reformers elected John Hayes a vice president.

Hayes, who holds a business degree, discovered that the value of assets worth approximately $30 million in November 1984 had dropped to about $9.5 million by early 1986. Money had been poured into businesses in which fund managers had hidden interests. Other investments included such follies as a pornographic cable-TV channel and a burned-out vessel to be transformed into a cruise ship. In mid-1986 Hayes and a rank-and-file group sued the trustees and the investment company for violating ERISA; several months later, the Labor Department joined the suit.

In Baltimore, Teamster Local 557 member Clifton MacDonald was killed in a trucking accident just months before he would have retired on an $800-a-month pension.

His son, Cliff, also a Teamster, was disturbed that his mother got only $160 a month. He joined Hermann Myers, a Teamster veteran, to study other Baltimore union pensions. Their own local, they discovered, paid retirees far less than did other locals in the area.

In November 1986 MacDonald and Myers led a ten-man slate challenging the local's officers. Shortly before the election, Myers recalls, the trustees announced a 50 percent raise in the death benefit and an increase of 30 percent in future pension contributions. Nevertheless, MacDonald and Myers, along with five of their fellow reformers, were elected.

Says Myers, a Teamster for 41 years, "You can't just pay your union dues and expect things to run themselves. You have to keep on top of what's happening."

If every union member followed that advice, racketeers and chiselers would be out of the pension and health plan business for keeps.


REPRINTED FROM THE MAY 1990 ISSUE OF READER'S DIGEST

copyright 1990 THE READER'S DIGEST ASSOCIATION, INC.



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