Vol. 24, No. 1

Illinois Public Employee Relations

IPER REPORT

Winter 2007

REPORT

Winter 2007 • Volume 24 Number1

The Changing Nature of Pension Plans and Retiree Medical Benefits: What the Private Sector Experience Portends for the Looming Crisis in the Public Sector

by Robert C. Long, Esq. I. Introduction Retirement benefits provide a critical ingredient to the income security of today’s workers. In 2004, 81.2 million employees (52 percent of all workers) worked for an employer that sponsored a retirement plan.1 Of these employees, 63.9 million participated in their employer’s plans, which equates to 41.9 percent of all workers.2 While employer-provided retirement plans in the private sector date only from the late nineteenth century, the public sector has been providing pensions for its workers since the Roman Empire.3 By 1930, virtually all federal workers and a majority of state and local workers were covered by pensions, whereas coverage in the private sector was as low as 10 to 12 percent of the labor force.4 Today 98 percent of state and local government workers participate in some type of retirement plan,5 as compared to only 51 percent of workers in the private sector.6 Although the private sector continues to lag behind the public sector with respect to overall participation in retirement plans, it has been in the forefront of the most dramatic change in the U.S. retirement system

INSIDE Recent Developments . . . . . . 09 Further References . . . . . . . . 11

during the last quarter of the twentieth century: the decline of “traditional” defined benefit (DB) plans and the rapid growth of defined contribution (DC) plans, especially the 401(k) plan. The debate over whether to shift away from DB plans and toward DC plans is now squarely before state and local government policy makers, as state and local governments face billions of dollars of unfunded pension liabilities.

The private sector has also been leading the way in making changes in the area of retiree medical benefits. In the past decade, the percentage of private sector employers offering retiree medical benefits has declined sharply. In contrast, the percentage of state governments offering retiree medical benefits has actually increased over the same time period, even though states are at a loss for revenue sources to fund the rapidly rising cost of these benefits.

This article will focus on the reasons behind the dramatic changes that have taken place in the private sector and on the effect these changes will have on the public sector. Part II provides an overview of the shift from DB plans to DC plans in the private sector, the reasons behind this trend, and the mounting pension crisis in the public sector. Part III analyzes the

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trend of declining retiree medical benefits in the private sector and whether certain accounting changes in the public sector will have an impact in this area. Finally, Part IV examines the reasons behind the differeing approaches taken by the private and public sectors and whether these differences will keep the public sector from following the private sector’s path.

II. Pension Plans: Recent Trends in the Private Sector and the Effect on the Public Sector There are two basic types of retirement plans: defined benefit (DB) plans and defined contribution (DC) plans. In a DB plan, the employer guarantees an annual benefit amount at retirement based on a specified formula that may depend on the employee’s years of service, age at retirement and either ending salary or average salary over the last few years of service. In contrast, in a typical DC plan, the employer and employee make specified contributions to an account established by the employer, and the final retirement benefit reflects the total of employer contributions, employee contributions and investment gains or losses.7 In DB plans, the employer controls all

IPER REPORT investment choices and shoulders the investment risk, whereas, in DC plans, the employee is responsible for investment decisions and investment risk.

Following World War II and into the 1970s, DB plans became the plan of choice in both the public and private sector.8 However, between 1983 and 2002,9 the number of private defined benefit plans decreased from 175,14310 to 47,369 plans,11 with the sharpest decline occurring between 1985 and 1992, when there was a 48 percent decrease in the number of plans.

During this same time period, defined contribution plans increased from 427,70512 to 685,943 plans.13 Today’s defined contribution plans account for 93 percent of total private pension plans. With respect to the number of actively working participants, the trend is the same. DB plans experienced a decline in participation from 30.2 million participants in 198414 to 21.6 million in 2002.15 On the other hand, DC plans experienced an increase in participation from 12 million in 198516 to 52.9 million in 2002.17 In addition to terminating DB plans, private employers have been Robert C. Long is a shareholder in the Chicago, Illinois and Columbus, Ohio offices of Littler Mendelson, the nation’s largest labor and employment law firm.

The views expressed herein are those of Mr. Long, not necessarily those of his firm or his clients. Mr. Long is a graduate of Knox College and Harvard Law School and has over 25 years of experience in representing a broad range of public and private sector employers.

Mr. Long acknowledges the enormous contributions to this article by Christa Fossee, an associate of Littler Mendelson’s Columbus office during the drafting of this article, and now a labor and employment attorney with a large multi-national corporation.

Winter 2007 “freezing” plans in some manner for current and/or new workers. Employers have implemented three primary types of pension freezes: (1) a hard freeze; (2) a soft freeze; or (3) a partial freeze.18 A hard freeze discontinues the accrual of benefits to all current and future plan participants from either additional tenure or increases in compensation. A soft freeze limits increases in accrued benefits for current participants for additional years of participation, but not for increases in compensation. A partial freeze occurs when the plan is frozen for some, but not all participants, such as all new employees.19 While pension freezing is not a new phenomenon, what’s unusual is the number of large, financially healthy companies that have recently announced pension freezes.20 In 2003, the most recent year for which data is available, 10.1 percent of single-employer plans with less than 100 participants were hard frozen, whereas only 2.2 percent of plans with 5,000 or more participants were hard frozen.21 Since 2004, sixteen companies with 5,000 or more participants have frozen their plans in some manner, including Verizon, IBM, Sears, Lockheed Martin and Sprint.22 Of these companies, seven instituted hard freezes, four instituted partial freezes, and five instituted freezes as to new employees only. As a result of the freezes, companies have either introduced a 401(k) plan or enhanced their existing 401(k) plan.

The public sector, on the other hand, has not experienced this same trend, at least not to the same degree.

In 1998, the most recent year for which the Bureau of Labor Statistics surveyed this data, 90 percent of state and local government workers participated in a DB pension plan.23 With respect to all types of retirement plans, the number of plans has declined somewhat, from 3,075 in 1981 to 2,659 in 2004.24 However, there was an increase in active participants from

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10.3 million to 14.2 million over the same time period.25 Interestingly, between 1994 and 1998, there was an increase in the percentage of workers participating in public sector DC plans from 9 percent to 14 percent. This was likely due to more state employers exploring DC plan approaches, often times to supplement rather than replace DB plans.

Although researchers and scholars have suggested several explanations for the shift from DB plans to DC plans in the private sector, two of these seem the most likely to have an impact on the types of pensions offered in the public sector: (1) government regulation and (2) the business environment and risk associated with funding and managing pension plans.26 A. Government Regulation: Reforms in the Disclosure Requirements for Private Sector and Public Sector Pension Plans 1. The Evolution of Disclosure Requirements for the Private Sector 1985 - 2006 In 1973, the Financial Accounting Standards Board (FASB) was established as the designated organization in the private sector for setting standards of financial accounting and reporting. To this end, in 1985, the FASB issued Financial Accounting Statement No. 87: Employers’ Accounting for Pensions (FAS 87). The fundamental objective of FAS 87 was to change the manner in which pension plan costs are recognized on a company’s financial statements to provide a more realistic picture of these costs.27 Prior to 1985, no asset or liability was recorded and reported for the year unless the amount paid into the pension fund by the employer was different from the amount expensed by the employer during that year through the payment of pension benefits.

Unrecognized was the real pension

IPER REPORT obligation, the current value of the pension plan assets, prior service costs (retroactive benefits), and unrealized gains and losses of plan assets.

FAS 87 required companies to recognize pension expenses as a liability based on the company’s accumulated benefit obligation, which was the actuarial present value of benefits attributed by the pension benefit formula to service before a specified date, and is based on each employee’s service and compensation prior to that date. The accumulated benefit obligation, however, included no assumptions about future compensation levels. FAS 87 required immediate recognition of a liability when the accumulated benefit obligation exceeded the fair value of plan assets.28 The Board concluded, however, that disclosure in financial statements of an unfunded liability in its entirety would be too great a change from past practice. Therefore, companies were required to disclose in their Statement of Financial Position only the projected benefit obligation, which takes into consideration projected salary increases, and the various components of the net pension cost.

The total unfunded liability had to be disclosed within a company’s annual report, but could be hidden in a footnote. Nevertheless, as evidenced by the sharp decline in the number of DB plans offered by private sector employers between 1985 and 1992, this new method of accounting for pension costs in the private sector played a major role in encouraging employers to shift from DB plans to DC plans during this time period.

Although FAS 87 required the use of the accumulated benefit obligation for purposes of recognizing either an asset or a liability in the pension fund, it did not require companies to disclose the amount of this obligation, unless the obligation was greater than the value of the pension plan assets. In 2004, the FASB issued Financial Accounting

Winter 2007 Statement No. 132R (FAS 132R) which required that the accumulated benefit obligation be reported under all circumstances. FAS 132R also required the disclosure of expected benefit payments for each of the next five years and the aggregate payment amount for the subsequent five-year period. A related new disclosure is that of the company’s expected contribution to the plan for the forthcoming year.

These disclosures should help investors and employees alike assess whether expected benefit payments are adequately funded, and may represent the most important new provisions of the statement.29 On September 29, 2006, the FASB issued Financial Accounting Statement No. 158 (FAS 158), which makes it even easier for investors, employees, retirees and others to understand and assess an employer’s financial position and its ability to fulfill the obligations under its benefit plans. FAS 158, which governs employers’ accounting for defined benefit pensions, retiree healthcare and other postretirement plans, requires employers to: (1) recognize the overfunded or underfunded status of a defined benefit retirement plan as an asset or liability in its statement of financial position; (2) recognize changes in the funded status in the year in which the changes occur; and (3) measure the funded status of a plan as of the date of its year-end statement of financial position.30 Under past accounting standards, employers reported an asset or liability that almost always differed from the plan’s funded status because previous accounting standards allowed employers to delay recognition of certain changes in plan assets and obligations that affected the costs of providing such benefits. In addition, past standards only required an employer to disclose the complete funded status of its plans in the notes to the financial statements. For publicly-held companies, the disclo-

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sure requirements of FAS 158 are effective as of the end of the fiscal year ending after December 15, 2006, and for all other entities, as of the end of the fiscal year ending after June 15, 2007.31 With all of this information front and center on a company’s financial statements, shareholders will undoubtedly be more vocal about the provision of DB plans and retiree health benefits, which will likely increase even further the trend toward terminations and freezes of these types of benefit plans.

2. Disclosure Requirements in the Public Sector The Governmental Accounting Standards Board (GASB) is the public sector equivalent to the FASB. In 1994, nine years after the FASB issued Statement 87, the GASB issued Governmental Accounting Statement No. 27: Accounting for Pensions by State and Local Governmental Employers (GASB 27). Like its private sector predecessor, GASB 27 requires state and local governmental employers to measure and disclose their pension expenditures on the accrual basis of accounting.32 Therefore, if the accumulated benefit obligation for the employer is equal to the value of the assets in the pension fund, the employer does not have to recognize and disclose a liability.

Because GASB 27 was not issued until the end of 1994 and did not become effective until mid-1997, its effect on the public sector has been somewhat delayed. Since 1995, and almost certainly partly in response to GASB 27, the number of DC plans in state and local governments has grown significantly. Currently, all fifty states offer DC plans either as a primary mandatory plan, an optional plan or a supplemental plan.33 The disclosure requirements of GASB 27 are also reflected in the growing reassessment and curtailment of DB

IPER REPORT plans, even though this trend is somewhat tepid as compared to the scope and rate of change experienced in the private sector after FAS 87 was issued in 1985. For example, West Virginia closed its teacher’s DB plan to new hires, Michigan replaced its DB plan with a DC plan for all state employees hired after March 31, 1997, and Alaska offers only a 401(k)-style option to state employees hired after July 1, 2006. And, in Colorado, Florida, Montana, North Dakota, Ohio and South Carolina, new employees must elect to be members of either a defined benefit plan or a defined contribution plan, and there is limited availability to transfer between the two types of plans.34 The former head of the New York State Retirement System, the second largest publicsector pension system in the nation, has reported that, when he was in office, there was “great pressure” to convert public workers’ DB pensions into 401(k)-style DC plans.35 B. The Risk Associated With Funding and Managing Pension Plans 1. The Private Sector Between 2000 and 2004, 595 underfunded pension plans were terminated, 157 more than during the previous five-year period.36 As a result, the pension insurance system for the private sector, the Pension Benefit Guaranty Corporation (PBGC), is currently underfunded by approximately $23 billion, including a recent takeover of plans at United Airlines with some $6.6 billion in claims.37 According to the executive director at the PBGC, total pension shortfalls for all corporate plans could be as much as $450 billion.38 As a result, on August 17, 2006, President Bush signed into law what has been called “one of the most sweeping reforms of the retirement plan universe.”39 The law requires

Winter 2007 companies to fully fund defined benefit pension plans within seven years, closes loopholes allowing underfunded plans to skip payments and forces companies that underfund their plans to pay higher premiums to the PBGC.40 One very important provision defines changes made to the method for calculating the yearly minimum required contribution. Under the new provision, the minimum required contribution depends on a comparison of the value of the plan’s assets, determined by using the fair market value of the assets, with the plan’s funding target and target normal cost.41 The funding target is the present value of all benefits accrued or earned as of the beginning of the plan year, and the target normal cost is the present value of benefits expected to accrue or be earned during the plan year.42 Previously, the amount of required annual contributions consisted of a comparison between the value of the assets, which was determined by making assumptions based on one of several actuarial cost methods that could be changed from year to year, and the cost of future benefits for current employees broken up into annual charges.43 The new law provides a more realistic picture of a company’s minimum required contribution, which could assist in preserving workers’ future retirement benefits, but is also likely to result in even more defined benefit plans being terminated or frozen.

In addition, the FASB continues to make changes to disclosure requirements which will make the numbers reported on company income statements and balance sheets more volatile. Phase one of the FASB’s planned changes concluded with the issuance of FAS 158, which is aimed at providing a more realistic assessment of pension plan finances by requiring that the unfunded liabilities for pension and retiree health benefits appear front and center on the

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company’s balance sheet, rather than hidden in a footnote.44 For example, at the end of 2004, General Motors Corporation’s pension plan had a shortfall of $7.5 billion, and its retiree health-care plans were underfunded by $57 billion. However, in order for investors to find this information, they had to locate footnote 16 within GM’s 196-page annual report.45 The unfunded liabilities will also be measured using the current market value of plan assets rather than some smoothed average, which is what the law currently requires.46 Morgan Stanley estimates that, because only one-third of the amount of retiree benefits are currently reflected on company balance sheets, if companies disclosed their full pension and other retiree obligations based on the new valuation method, reported liabilities would soar 40 percent, to nearly $1 trillion.47 It is no wonder that even healthy companies are opting to terminate or freeze their defined benefit pension plans.

2. The Public Sector The pension funding levels for the largest 125 state retirement systems went from being overfunded by $221 billion in 2000 to being underfunded by $431 billion in 2003.48 In 2004, 104 state retirement systems reported figures showing that they were underfunded by $261.1 billion.49 Although it is difficult to compare this figure with the amount of underfunding in 2003 because only 104 systems were included, there was still a notable jump in the value of pension assets in 2004. In 2005, only 58 state retirement systems reported their pension figures. These state pensions are underfunded by $149.6 billion, which is only slightly less than the amount these same pension plans were underfunded in 2004 - $151.5 billion.50 Local governments are also being hit hard. Although there are no exact figures as to the extent of the damage, many cities are having to raise

IPER REPORT property taxes upwards of 50 percent and cut services to cover increased pension costs.51 Pension experts believe that, if public plans calculated their pension obligations using the more conservative actuarial assumptions that private funds utilize, the amount of underfunding would be closer to $700 billion,52 a number that does not include the amount of retiree health benefits promised to present and future public retirees. The bill for these benefits at both the state and local levels could top $1 trillion.53 The reasons underlying the burgeoning public pension crisis are twofold: bad planning and poor policy decisions. First, because there is no governmental regulation requiring states to fund at a certain level, a majority of states made a conscious decision to underfund their pension accounts to finance other priorities such as Medicaid and education.54 Second, even as the first signs of a problem were beginning to appear, states continued to sweeten their pension benefits.55 Although Illinois is the fifth-wealthiest state in total income, Illinois has been avoiding its pension-funding responsibilities for more than thirty years.56 As a result, the state has the nation’s largest unfunded pension debt, currently calculated at $42 billion.57 In addition, Illinois has a funding ratio of assets to liabilities of 58 percent.58 Nevertheless, in 2006, the Illinois legislature passed what has been referred to as “Pension Holiday” legislation, which allows Illinois Governor Rod Blagojevich to divert $2.3 billion from public pensions to balance the State budget over the next two years.59 Although there are also reform measures contained in the bill, such as capping pay increases at 6 percent during the four final years of employment and requiring that any newly enacted retirement benefit receive full funding and a five year expiration date, the legislation does

Winter 2007 nothing to help decrease the already overwhelming pension debt that the state is currently facing.60 Public pension benefits are generous when compared to the average benefits received by workers in the private sector. As reported in a recent cover story in USA Today, “Retired government workers are twice as likely to get a pension as their counterparts in the private sector, and the typical benefit is far more generous. The nation’s 6 million retired civil servants – teachers, police, administrators, laborers – received a median benefit of $17,640 in 2005, according to the Congressional Research Service. Eleven million private-sector retirees covered by traditional pensions got $7,692.”61 Even companies that are touted as having the best benefits in the country, such as Philip Morris, Schering-Plough and Phelps Dodge, provide pension benefits that amount to only about 30 percent to 50 percent of the employee’s final pay.62 Although one could argue that the pension benefits in the private sector are lower because employees also receive Social Security benefits, the fact of the matter is that “three-fourths of government workers participate in Social Security, but their overall benefits have not been reduced accordingly.”63 The fact that public sector employees often make significant contributions to their DB retirement plans from their earnings over the course of their careers (this is especially true of the police officers and firefighters), is likely to be lost in the brewing public debate over policy choices that will have to be made as the government’s share of the cost of these DB plans comes due.

III. Retiree Medical Benefits A. Trends in the Private Sector Although retiree medical benefits were never a common benefit in the private

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sector, in recent years, they have become even rarer. The percentage of private-sector employers with 500 or more employees offering medical benefits to early retirees (pre-65) has declined from 46 percent in 1993 to 28 percent in 2004.64 A similar decline took place with respect to retiree health benefits offered by these same employers to Medicare-eligible retirees, from 40 percent to 20 percent. In addition, the provision of retiree medical benefits to early retirees who worked for companies with 1,000 or more employees declined from 88 percent in 1991 to 68 percent in 2003, and the provisions of these benefits to Medicare-eligible retirees decreased from 80 percent to 56 percent. 65 The majority of employers who continue to offer retiree medical benefits have made substantial changes to the benefits package and eligibility requirements. Changes to the benefits package include an increase in the premiums that retirees are required to pay, limited or reduced benefits and adoption of access-only plans. For example, SBC and Caterpillar have scaled benefits way back, requiring retirees to pay bigger deductibles or a larger share of their health insurance premiums.66 And, in a landmark concession last year, the United Auto Workers agreed to a similar change in its contract with General Motors.67 The percentage of employers with 500 or more employees requiring early retirees to pay 100 percent of the premium increased from 31 percent in 1997 to 38 percent in 2000.68 The amount increased by 10 percent over the same period for employers offering retiree health benefits to Medicareeligible retirees.69 With respect to eligibility requirements, the percentage of employers requiring employees to work to at least age 55 and have at least ten years of service increased from 30 percent in 1996 to 38 percent in 2003.70 Many companies, such as ConocoPhillips and Coca-Cola Enter-

IPER REPORT prises, are also capping their total retiree healthcare outlays at some specified dollar amount. Once the company hits the cap, retirees have to assume any additional costs for their coverage.71 In a recent settlement between Goodyear and the United Steelworkers over such cost caps, Goodyear bailed out of providing retiree medical benefits entirely in exchange for a one-time payment of $1 billion in cash and Goodyear stock and diversion of future COLA and Profit Sharing payments into a separately administered Voluntary Employees’ Beneficiary Association (VEBA).72 Although it is likely that several factors played a role in the decline in the percentage of private-sector employers offering retiree medical benefits, one of the primary trigger events can be traced back to December 1990, when the FASB issued Financial Accounting Statement No.106: Employers’ Accounting for Postretirement Benefits Other then Pensions (FAS 106).73 Similar to FAS 87, FAS 106 markedly changed the manner in which most private-sector employers accounted for retiree medical benefits by requiring employers to accrue and expense certain future claims’ payments as well as actual paid claims.74 Due to the dramatic impact that recognition of this expense has on a company’s financial statements, and the increasing cost of providing health care benefits in general, many privatesector companies began to overhaul their retiree medical benefit plans to control, reduce or eliminate costs.

Thus, there was a direct correlation between the FASB’s issuance of FAS 106 and the decline in the percentage of private-sector employers offering retiree medical benefits. This trend will only increase with the FASB’s issuance of FAS 158, which is discussed in more detail in Part II.A. B. Trends in the Public Sector In contrast to private-sector employ-

Winter 2007 ers, state governmental employers actually increased their provision of retiree health benefits between 1997 and 2002,from76 percent to 92 percent for early retirees and from 69 percent to 86 percent for Medicaid-eligible retirees.75 Local governmental employers, on the other hand, followed the private sector’s lead and decreased their provision of retiree medical benefits between 1997 and 2002, from 62 percent to 55 percent for early retirees and from 47 percent to 35 percent for Medicaid-eligible retirees.76 In 2003, all fifty states provided medical benefits to early-retirees and every state but two, Nebraska and Indiana, provided medical benefits to Medicaid-eligible retirees. With respect to benefits offered to earlyretirees, sixteen states, including Illinois, paid 100 percent of the premium for at least the lowest-cost plan offered, twenty-two states shared the cost with the retirees and, in twelve states, the retirees were responsible for the entire cost of the premium.77 Of the forty-one states that reported providing some contribution towards retiree medical benefits, thirty states financed these costs on a pay-as-you-go basis and eleven states used a prefunding arrangement.78 However, the states that prefunded the benefit accounts did so to a lesser degree than they funded their pension accounts.

This approach may change, however, as the first phase of GASB Statement No. 43: Financial Reporting for Post-Employment Benefit Plans Other Than Pension Plans (GASB 43) became effective in December 2006. GASB 43 requires public employers to recognize and account for retiree medical benefits in the same manner as private-sector employers.

Similar to FAS 106, GASB 43 requires public-sector employers to accrue the future costs of retiree health benefits during the years of active service of their employees.79

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The potential impact of GASB 43 is difficult to determine based on the variety of factors at play; however, it is likely that those state employers who are currently recording their retiree medical benefit expenses on a pay-asyou-go basis will incur a substantial liability once they are forced to recognize the expenses on an accrual basis.80 In an August 2006 report, retirement benefits specialists at J.P. Morgan Chase projected the present value of unfunded health care and other non-pension benefits to be between $600 billion and $1.3 trillion.81 The current unfunded liability of approximately $300 billion for public sector state pension plans seems almost modest by comparison.

Among the states with the largest unfunded health care and other nonpension benefits are California ($70 billion), New York ($54 billion), Maryland ($20 billion), Alabama ($19.8 billion), and Massachusetts ($13.2 billion).82 States and local governments have begun to address the issue. For example,New York City Mayor Michael Bloomberg has pledged to set aside $1 billion for retiree health benefits, and Hawaii, along with 2 other states, plans to redefine the eligibility criteria for full benefits, and will cut benefits for dependents of employees hired after June 30, 2001.83 In addition, within the past two years, twenty-four states increased cost-sharing, thirteen states increased the retiree’s share of the premium, and seven states created multi-tier networks.84 However, as with the pension issue, these changes may be too little too late.

IV. Other Public and Private Sector Comparisons At one time, public employees could regard higher retirement benefits as compensation for lower current wage rates. Recently, this has become less so. As stated in a recent front-page article in USA Today, “Contrary to a

IPER REPORT widely held notion, the extra government benefits aren’t compensation for lower pay. Most government workers are paid more than private employees in similar jobs, and the wage gap is growing.”85 This may be due, at least in part, to the changes in union density in both sectors to the changes in union density in both setors.

Union membership peaked in 1979 with approximately 21 million members.86 Between 1979 and 2003, the number of members steadily declined to 15.8 million workers.87 According to 2003 figures, 37.2 percent of workers in the public sector are represented by a union as compared to 7.2 percent in the private sector.88 Between 1994 and 2003, the percentage of public sector employees represented by unions increased from 42.4 percent to 46.4 percent.89 In 2003, 42.6 percent of local government employees and 30.3 percent of state employees were union members.

Over the past decade, union membership has been declining at the local level, but has remained fairly steady at the state level.90 With respect to compensation, most studies find that the wages of union workers are higher than the wages of nonunion workers,91 although it is difficult to verify this with studies that make “apple to apple” comparisons. Union representation among public sector workers is particularly high among teachers and public safety personnel, which tend to be the most highly compensated nonexecutive positions in the public sector, whether unionized or not.

Collective bargaining in the public sector tends also to be a more conservative process than what is possible in the private sector due to the legislative protections afforded retirement plans in most states. As a result, radical changes are difficult to make and slow in coming. In Illinois, retirement benefits are largely protected from change through collective bargaining, because they are set by

Winter 2007 State legislation, and are protected from erosion through collective bargaining by Section 7 of the IPLRA. The conservative nature of change in public sector bargaining is further reinforced by the prevalence of interest arbitration as a dispute resolution mechanism for collective bargaining, especially for public safety employees.

Radical breakthroughs are rarely achieved through interest arbitration.92 In addition, much of the retirement benefits for public sector employees enjoy legal protection – often found in state constitutions – far greater than the legal protection afforded to private sector employees.

While some states, such as Oregon and California, are slowly making changes by instituting a freeze on pension plan participation for newly hired employees, others, like Illinois, continue to pretend these obligations don’t exist. However, because the majority of politicians have refused to deal with the issue, taxpayers are beginning to realize the enormous bill with which they are faced, and are making their voices heard through the ballot box.93 For example, in Houston, which has a plan that can give a 25year worker 90 percent of her salary in retirement, complete with a 4 percent annual cost-of-living increase, taxpayers recently voted to give the city government the right to renegotiate the promised benefits under the plan.94 And, in 2005, voters in New Hampshire elected into office fiscal conservatives who promised tax relief, and passed propositions imposing strict spending limits on local governments.95 Once GASB 43 takes effect, pension accounting experts and taxpayers will know the full extent of the problem, which should increase the pressure on state and local government officials to face the issue and make changes.

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V. Conclusion Starting in 1983, private-sector employers began shifting their focus from defined benefit plans to defined contribution plans. The trends toward increasing reliance on defined contribution plans and the decline of defined benefit plans in the private sector are slowly beginning to be replicated in the public sector, and will continue to do so as state and local governments try to climb out of a deep financial hole created by the provision of overly generous pension benefits and a history of underfunding. Just as in the private sector, these changes will be spurred on by accounting reforms that will shine the bright light of public scrutiny on the mounting costs of unfunded defined benefit plan commitments.

The same pattern is likely to be repeated in the area of retiree medical benefits. Just as accounting rules changes in 1990 precipitated a sharp decline in retiree medical benefits in the private sector, similar accounting changes that became effective in December 2006 in the public sector will place mounting scrutiny and pressure on government officials to curtail or eliminate retiree medical benefits for X public employees.

Notes 1. EMPLOYEE BENEFIT RESEARCH INSTITUTE, EBRI DATABOOK ON EMPLOYEE BENEFITS ch. 1 (July 2006).

2. Id. 3. Lee A. Craig, Public Sector Pensions in the United States, E. H. NET ENCYCLOPEDIA (May 17, 2003), at <http://www.eh.net/ encyclopedia/?a r t i c l e . c r a i g . p e n s ions. public.us>.

4. Id. 5. David Rajnes, An Evolving Pension System: Trends in Defined Benefit and Defined Contribution Plans, EBRI ISSUE BRIEF NO. 249, Sept. 2002, at 19.

6. BUREAU OF LABOR STATISTICS, U.S. DEPT OF LABOR, NATIONAL COMPENSATION SURVEY: EMPLOYEE BENEFITS IN PRIVATE INDUSTRY (Mar. 2006).

7. Employee Benefit Research Institute, EBRI Research Highlights: Retirement Benefits, EBRI ISSUE BRIEF NO. 258, June 2003, at 6 (hereinafter EBRI Research Highlights).

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8. Rajnes, supra note 5, at 4.

9. This is the most current year for which the Department of Labor has released data. See U.S. DEPT. OF LABOR, ABSTRACT OF 2002 FORM 5500 ANNUAL REPORTS. 4 (July 28, 2006) (hereinafter DOL ABSTRACT).

10. EBRI Research Highlights, supra note 7, at 10.

11. DOL ABSTRACT, supra note 9.

12. EBRI Research Highlights, supra note 7, at 10.

13. DOL ABSTRACT, supra note 10.

14. Employee Benefits Research Institute, Private Pension Plans, Participation and Assets: Update, FACTS FROM EBRI, Jan. 2003, at <http://www.ebri.org/publications/facts/index.cfm?fa=0103fact>.

15. DOL ABSTRACT supra note 9.

16. Rajnes, supra note 5, at 6.

17. DOL ABSTRACT, supra note 9.

18. Jack VanDerhei, Defined Benefit Plan Freezes: Who’s Affected, How Much, and Replacing Lost Accruals, EBRI ISSUE BRIEF NO. 291, Mar. 2006, at 3.

19. Id. 20. See Alicia H. Munnell et al., Why are Healthy Employers Freezing Their Pensions?, ISSUE IN BRIEF NO. 44, (Center for Retirement Research at Boston College, Mar. 2006), available at <http://www.bc. edu/centers/crr/issues/ib_44.pdf>.

21. PENSION BENEFIT GUARANTY CORPORATION, AN ANALYSIS OF FROZEN DEFINED BENEFIT PLANS 6 (Dec. 21, 2005).

22. Munnell et al., supra note 20, at 2.

This figure does not include freezes at companies facing financial pressures, such as General Motors, which in February 2006 announced a freeze for its salaried pension plan, or Northwest Airlines, which froze its pilots’ pension in January 2006. Id. at 3.

23. Editorial, Think: The Public Pension Crisis, N. Y. SUN, Jan. 9, 2006, available at <http://www.nysun.com/article/ 25508>. See also BUREAU OF LABOR STATISTICS, EMPLOYEE BENEFITS IN STATE AND LOCAL GOVERNMENTS, 1998, at 2 (Bulletin 2531, Dec. 2000).

24. EMPLOYEE BENEFIT RESEARCH INSTITUTE, EBRI DATABOOK ON EMPLOYEE BENEFITS: STATE AND LOCAL GOVERNMENT PENSION PLANS ch. 19 (July 2006).

25. Id. 26. See Tom Anderson, Lessons Learned: Switch to DC Plans Causing Benefits Divide, EMPLOYEE BENEFIT NEWS , July 1, 2005 (citing regulatory burden and increased cost of DB plans as the primary reasons for switching to DC plans or hybrid plans); Tom Anderson, Sharp Divisions Mark Pension Reform Debate, EMPLOYEE BENEFIT NEWS, May 1, 2005.

27. FINANCIAL ACCOUNTING STANDARDS BOARD (FASB), S UMMARY OF STATEMENT NO. 87: EMPLOYERS’ ACCOUNTING FOR PENSIONS (1985), a t <http://www.fasb.org/facts/index. shtml> (hereinafter SUMMARY OF FAS NO. 87).

28. Id. 29. Brian W. Carpenter & Daniel P. Mahoney, Pension Accounting: The Continuing Revolution – New Disclosure

Winter 2007 Standards, CPA J. Oct. 2004, at 24, available at<http://www.nysscpa.org/ cpajournal/2004/1004/essentials/ p24.htm>.

30. FINANCIAL ACCOUNTING STANDARDS BOARD, S UMMARY OF S TATEMENT NO . 158 (2006), available at <http://www.fasb.org/st/summary/stsum158.shtml>.

31. FINANCIAL ACCOUNTING STANDARDS BOARD, FASB IMPROVES EMPLOYERS’ ACCOUNTING FOR DEFINED BENEFIT PENSION AND OTHER P OSTRETIREMENT PLANS (Sept. 29, 2006), available at <http://www.fasb.org/news/ nr092906.shtml>.

32. GOVERNMENTAL ACCOUNTING STANDARDS BOARD, SUMMARY OF STATEMENT NO. 27: ACCOUNTING FOR PENSIONS BY STATE AND LOCAL GOVERNMENTAL EMPLOYERS (1994), available at <http://www.gasb.org/st/index.html>.

33. NATIONAL CONFERENCE OF STATE LEGISLATURES, DEFINED BENEFIT AND DEFINED CONTRIBUTION P LANS (Feb. 2005), available at <http://www.ncsl.org/programs/fiscal/ defineretire.htm> (hereinafter DB AND DC P LANS ). See also Leah Carlson, States Continue as Mainstay for DB Pensions, EMPLOYEE BENEFIT NEWS, June 1, 2005.

34. DB AND DC PLANS, supra note 33.

35. Employee Benefit Research Institute, The Employment-Based Pension System: Evolution or Revolution, EBRI N OTES , July 2006, at 2 (hereinafter EmploymentBased Pension System).

36. VanDerhei, supra note 18, at 4.

37. Susanna Moon, Large Firms Now Abandoning DB Plans, Survey Says, EMPLOYEE BENEFIT NEWS, Aug. 1, 2005.

38. Id. 39. Jeanne Sahadi, Pension Reform: Boon for 401(k)s <http://www.cnnmoney.com/ 2006/08/17/pf/retirement/pension_signing/ index.htm>.

40. Peter Baker, Bush Signs Sweeping Revision of Pension Law, WASH. POST, Aug. 18, 2006.

41. Joint Committee on Taxation, Technical Explanation of H.R. 4: The Pension Protection Act of 2006 the Pension Protection Act of 2006 as passed by the House on July 28, 2006, and as Considered by the Senate on August 3, 2006, at 9 (JCX-38-06, Aug. 3, 2006), available at <http://www.house.gov/jct/x-38-06.pdf>.

42. Id. at 10.

43. Id. at 2-4.

44. Munnell, supra note 20, at 7. See also Nanette Byrnes & David Welch, Retiree Accounting: More Than Meets the Eye, B USINESS W K . ONLINE , Jan, 30, 2006, at <http://www.businessweek.com/print/ magazine/content/06_05/b3969080.htm>.

45. Byrnes & Welch, supra note 44, at 1.

46. Munnell, supra note 21, at 7.

47. Byrnes & Welch, supra note 44, at 1.

48. JULIA K. BONAFEDE ET AL., 2006 WILSHIRE REPORT ON STATE RETIREMENT SYSTEMS: FUNDING L EVELS AND ASSET ALLOCATION 2 (2006) (hereinafter 2006 W ILSHIRE REPORT), available at < http://www.wilshire.com/Company/2006_State_Funding_Report.pdf>.

49. Id. 50. Id. at 3.

51. Janice Revell, The $366 Billion Outrage, FORTUNE, MAY 31, 2004, at 134.

52. Nanette Byrnes & Christopher Palmeri, Sinkhole! How Public Pension

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Promises are Draining State and City Budgets, BUSINESS WK. ONLINE, June 13, 2005, at < http://www.businessweek.com/ magazine/content/05_24/b3937081.htm>.

53. Dennis Cauchon, Huge Bill for Public Retirees Hits Soon, USA TODAY, May 18, 2006, available at <http://www. usatoday.com/news/health/2006-05-18retiree-health_x.htm>.

54. DELOITTE RESEARCH, PAYING FOR TOMORROW: PRACTICAL STRATEGIES FOR TACKLING THE PUBLIC PENSION CRISIS 1 (2006) (hereinafter PAYING FOR TOMORROW).

55. Id. 56. Byrnes & Welch, supra note 44.

57. THE CIVIC FEDERATION, STATE OF ILLINOIS PENSION SYSTEMS: ANALYSIS AND RECOMMENDATIONS 3 (Mar. 17, 2006), available at <www.civicfed.org/articles/civicfed_ 207.pdf>. The Illinois Commission on Government Forecasting & Accountability also projects that, at the current rate of funding, the unfunded liability will grow to $45.7 billion in fiscal year 2007.

Id. 58. Id. 59. Vivian Malli, State of Illinois Employees’ Pensions Endangered, GAZETTE , Aug. 5, 2005, at 1.

60. Id. 61. Dennis Cauchon, Pension Tension, USA T ODAY , Feb. 21, 2007. Due to the muted reaction of the public sector to accounting rules changes and the defined benefit pension plan funding crisis, the gap in pension benefits between public and private sector workers may become even more notable in the future. For example, a police officer working in an illustrative suburb of Chicago earns a base salary of $65,673 in 2006 after six years of service. Assume that the officer started working at the age of 22 in 2000, and receives average pay increases of 3% each year, for the remaining 24 years of his career. His earnings when he retires at the age of 52 will be approximately $133,500, assuming he never gets a promotion and works no overtime.Under the Police Pension Plan for Municipalities of 500,000 or less, a police officer who retires after 30 years of service can receive 75% of the base salary attached to his rank on his last day of service. 40 ILCS 5/ 3-111(a). In addition, once he reaches the age of 55, he can begin receiving 3% COLA increases to his annual pension benefit each year. 40 ILCS 5/3-111.1(d).

Thus, when the police officer retires at age 52, he will receive an annual pension benefit of approximately $100,125. Due to the 3% COLA increases he will begin receiving three years after he retires, at the age of 65, his annual pension benefit will surpass the salary he was receiving when he retired, or approximately $134,560. By age 75, his annual pension will be $180,837.

In contrast, the private sector basic benefit levels for a high-end pension plan for a UAW-represented auto industry production worker is well under the yearly pension benefit of many state government workers. Based on the UAW’s contract with GM and Delphi in effect in 2006, a worker retiring after October 1,

IPER REPORT 2006 with 30 years of experience will receive $3,020 per month or $36,240.00 annually prior to his eligibility for Social Security benefits, and only a little more than half that amount after he begins receiving Social Security benefits. United Auto Workers, Pension Gains for Future and Current Retirees, GM AND DELPHI REPORT , Sept. 2003) available at <http:// www.uaw.org/contracts/03/gm/ gm06.cfm>. If a worker retires with less than 30 years of service with the company, and is in the highest benefit class code, he will receive a maximum of $51.65 per year of service per month, which equates to $1,291 per month or $15,495 annually. Id. 62. Liz Weston Pulliam,Tap Into America’s Best Pension Plans, at <http://www. moneycentral.msn.com/content/retirement andwills/retireinstyle/p95335.asp>.

63. Cauchon, supra note 61, at 2A. 64. Paul Fronstin, The Impact of the Erosion of Retiree Health Benefits on Workers and Retirees, EBRI ISSUE BRIEF NO. 279, Mar. 2005, at 7.

65. Id. 66. Geoffrey Colvin, Another Perk Joins the Endangered Species List, F ORTUNE , June 15, 2006.

67. Id. 68. Fronstin, supra note 64, at 6.

69. Id. 70. Id. 71. Colvin, supra note 66.

72. See Jim Mackinnon, Goodyear Talks Up Union Deal, AKRON BEACON-J., Jan. 10, 2007, at D-1;Brad Dawson, Strike Over, Now Comes Hard Part, TIRE NEWS, Jan. 15, 2007, at 1; Retiree Health Care Shifts to Unions, NPR MORNING EDITION, Feb. 21, 2007, available at <http://www.npr.org/ templates/story/story.php?storyId=7513866>.

73. Fronstin, supra note 64, at 8.

74. Id. 75. Id. at 5.

76. Id. 77. Stan Wisniewski & Lorel Wisniewski, State Government Retiree Health Benefits: Current Status and Potential Impact of New Accounting Standards 5 (AARP Public Policy Institute No. 200408, July 2004).

78. Id. at 11.

79. Id. at 17.

80. See Revell, supra note 51.

81. Bob Porterfield, Public Sector Sick Over Retiree Medical Bills, SEATTLE POSTINTELLIGENCER, Sept. 25, 2006).

82. Id. 83. PAYING FOR TOMORROW, supra note 54, at 5.

84. Id. 85. Cauchon, supra note 61, at 2A. 86. GERALD MAYER, UNION MEMBERSHIP TRENDS IN THE UNITED STATES, at Summary (Cong.

Res. Serv. (Aug. 31, 2004).

87. Id. 88. Id. at 16.

89. Id. 90. Id. at 18.

91. Id. at Summary.

92. See Gary Bailey, Health Insurance Trends in Interest Arbitration, ILLINOIS PUBLIC EMPLOYEE RELATIONS REP., Winter 2006, at 1.

93. See Brenda J. Buote, Election Results Show N.H. on Verge of Taxpayer Revolt,

Winter 2007 BOSTON GLOBE, Nov. 20, 2005).

94. Pulliam, supra note 62.

95. Buote, supra note 93.

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Recent Developments Recent Developments is a regular feature of The Illinois Public Employee Relations Report. It highlights recent legal developments of interest to the public employment relations community. This issue focuses on developments under the two collective bargaining statutes.

IELRA Developments Arbitration In Niles Township Federation of Teachers v. Board of Education of Niles Township, Case No. 2006-CA0036-C (IELRB 2006), the IELRB held that the employer was entitled to raise the question of arbitrability before the arbitrator, even after it was ordered to engage in arbitration by the IELRB. The union had filed an unfair labor practice charge after the employer refused to arbitrate a grievance regarding three non-tenured teachers whose employment was ended at the conclusion of the 2003-2004 school year and the IELRB ordered the employer to arbitrate. Niles Township High School District 219, 21 PERI 104 (IELRB 2005). The employer filed a motion with the arbitrator to dismiss the proceedings on grounds that the grievances were inarbitrable.

Shortly thereafter, the union filed an additional unfair labor charge, claiming that the motion to dismiss improperly interfered with the union’s right to arbitrate grievances under the IELRA.

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The IELRB held that the employer was not precluded from raising the issue of substantive arbitrability before the arbitrator, even though the IELRB had previously ordered the employer to arbitrate the grievances.

The IELRB relied on Staunton Community Unit School Dist. No. 6 v.

IELRB, 200 Ill.App.3d 370, 588 N.E.2d 751 (4th Dist. 1990), where the court stated in dicta that after the IELRB finds a grievance arbitrable, “it goes to the arbitrator, where the parties may again raise arbitrability as well as the merits of the grievance.”

In SEIU Local 73 v. Southern Illinois University at Edwardsville, No. 2006-CA-0025-S (IELRB 2006), the IELRB affirmed the decision by the Executive Director and determined that the University did not violate Sections 14(a)(1) and 14(a)(5) of the Illinois Educational Labor Relations Act (“Act”) when it implemented an arbitration award because the award was not contrary to Illinois statutes.

The union filed a grievance in April 2004 after the university laid off some civil service cafeteria bargaining unit employees over the summer while continuing to hire student workers to perform similar functions. The grievance alleged that the university violated Section 250.70(f)(2) of the Rules of the State Universities Civil Service System, which provides that “a student employee shall not displace a certified Civil Service employee,” and Article V, Section 3 of the collection bargaining agreement which stated that nothing in the CBA shall supersede the rules and regulations of the State Universities Civil Service System of Illinois.

The arbitrator rejected the union’s argument, observing that the CBA recognized that there were two different classes of employees who performed the same work, and there was no “exclusive jurisdiction” over the work. Each unit of employees was

IPER REPORT staffed independently, and “the mere employment of a student to perform work also done by bargaining unit employees cannot be a displacement.”

The arbitrator did recognize Article XIX, Section 4, of which the union did not allege a violation, that stated the percentage of work performed by the bargaining unit employees shall not be materially altered by student workers. Thus, the arbitrator concluded Article XIX, Section 4 “permits layoffs of bargaining unit employees and retention of students so long as the percentage of work performed by the two groups remains ‘appreciably the same.’” Here, the percentage of bargaining unit employees increased over the summer from the spring, despite the layoffs.

The union argued to the IELRB that the arbitrator’s refusal to consider evidence that the university violated Article XIX, Section 4 of the CBA was repugnant to the Act, and the award violated clear public policy codified in Section 250.70(f)(2). The IELRB reiterated that review of arbitration awards is “extremely limited, and awards must be construed, if possible, as valid.” However, awards made contrary to state law are not binding under Section 10(b) of the Act, and therefore an employer who implements such an award violates Sections 14(a)(5) and 14(a)(1). Here, the union made no claim that the award violated an Illinois statute, only public policy.

The IELRB concluded, “An employer’s implementation of an award that violates public policy or an administrative rule does not in itself violate Section 14(a)(1) or 14(a)(5) of the Act.” Furthermore, the Board found that the award in this case did not violate public policy, and the union’s real argument was that the arbitrator made the wrong decision.

Unit Clarification Petitions In Niles Township High School District 219 v. IELRB, 369 Ill. App. 3d

Winter 2007 128, 859 N.E.2d 57 (1st Dist. 2006), the First District Appellate Court held that the IELRB erred in dismissing the employer’s unit clarification petition.

The employer sought the removal of three Information Systems (IS) employees, claiming they were confidential. The IS employees were part of the original unit established prior to 1999, but in May 2001 the employer adopted a new computer-use policy, which gave the IS employees unlimited access to all employees’ and administrators’ workstations and files. The union challenged some of these new computer-use policy provisions, and an agreement about the matter was not reached until the winter of 2002. The employer claimed the IS employees’ duties did not change until after January 6, 2003, when the board of education ratified the agreement. The employer filed its petition for unit clarification on May 30, 2003.

The ALJ found the employer did not meet the three circumstances for a unit clarification petition: (1) there is a newly created job classification, (2) the job functions of the existing classification have changed substantially since the unit was clarified, or (3) there has been a statutory or case law change that affects bargaining rights of employees. The ALJ also decided, sua sponte, that the petition was untimely because it was filed two years after the IS employees’ job responsibilities were changed.

The IELRB overturned Community High School District No. 218 2 PERI ¶ 1087 (IELRB 1986) and held, “Unit clarification petitions seeking to exclude allegedly statutorily excluded employees from a bargaining unit must be filed within a reasonable period.” The IELRB refused to consider evidence of the winter 2002 agreement and January 2003 school board ratification because that evidence had not been presented to the ALJ. The court held that the ALJ violated the employer’s procedural due process rights because the employer had no

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notice “that the ALJ was contemplating dismissal of its petition on an untimeliness basis and . . . no opportunity to be heard or make arguments as to the issue.” Because the additional evidence that the employer sought to introduce before the IELRB was in response to the ALJ’s improper sua sponte untimeliness ruling, the court found the IELRB’s refusal to consider the evidence was a further denial of the employer’s procedural due process rights.

The court also held that the IELRB’s new rule on timeliness of unit clarification petitions conflicted with the court’s decision in Department of Central Management Services v.

ILRB, 364 Ill. App. 3d 1028, 848 N.E. 2d 118 (1st Dist. 2006), which held that a unit clarification petition seeking to remove confidential employees may be filed at any time.

IPRLA Developments Bargaining Units In State of Illinois, Department of Central Management Services and AFSCME Council 31, Case No. S-RC07-032 (ILRB State Panel 2006), the State Panel dismissed AFSCME’s petition to represent Technical Manager IVs employed by the Illinois Department of Central Management Services (CMS). In its existing RC-62 unit, AFSCME sought to represent eighteen Technical Manager IVs, although there were approximately two hundred state employees with that title at different state agencies, including CMS and the Department of Transportation. CMS contended that the petitioned-for unit was inappropriate, because it sought to unionize only some Technical Manager IVs. The State Panel applied Dupage County Board, 1 PERI ¶2003 (ISLRB 1985) which held that where an employer has an established and centralized job classification system, a

IPER REPORT presumption of inappropriateness is warranted when the union has sought to organize only a portion of employees who perform duties in identical job classifications. This presumption can be overcome and a smaller unit can be appropriate: 1) where an internal cohesiveness existed and where such factors as traditional historical pattern of recognition or functional integration sufficiently outweighed the consideration of common personnel structure and the possibility of fragmentation; or 2) where the facts present a legitimate and rationale basis for having a smaller unit.

AFCME argued that the exceptions to the Dupage presumption applied.

First, AFCME claimed the CMS Technical Manager IVs shared a community of interest with Liability Claims Adjusters, a group that was already a part of the RC-62 unit. The State Panel rejected this claim, stating that similarity in job function was not sufficient to establish a community of interest strong enough to overcome the presumption of inappropriateness, especially because the RC-62 unit included not just Liability Claims Adjusters, but many other job titles wholly different from Technical Manager IVs. Further, AFCME argued that dismissing the representation petition would be inconsistent with the IPLRA’s protection of an historical bargaining unit at the Department of Transportation, as the CMS Technical Manager IVs used to work for that Department. The Board found this “difficult to comprehend,” because AFSCME also asserted that with the consolidation that moved the Technical Manager IVs to CMS, the historical factors no longer applied. Further, AFCME conceded that the eighteen employees had never been part of any bargaining unit in the past.

Representation Elections In Teamsters Local 714, Clerk of the Circuit Court of Cook County, and

Winter 2007 AFSCME Council 31, Case No. S-RC06-153 (ILRB State Panel 2006), the State Panel affirmed the executive director’s decision to certify Local 714 as the exclusive representative of a group of Circuit Court of Cook County employees over the incumbent AFSCME’s objections. In March 2006, Board agents conducted a representation election at eleven locations over a two-day period. During that time, “electioneering” took place near the polling locations, although a noelectioneering zone was established within the polling locations themselves. Local 714 won the election, getting 765 votes to AFSCME’s 687 votes. AFSCME filed timely objections, claiming that the electioneering tainted the election.

Applying the “laboratory conditions” standard adopted in Illinois Office of the Comptroller, 5 PERI ¶2010 (ISLRB 1989) the Panel held that laboratory conditions were not breached, because the electioneering did not have a “reasonable tendency to affect the outcome of the election.”

Under the Board’s Regulations, a Board agent need not establish a noelectioneering zone outside the polling locations themselves, “for example to encompass the area where employees are waiting in line to vote . . . .” 80 Ill. Admin. Code §§1200-1240. Thus, laboratory conditions were not breached when electioneering took place down the hall from the polling locations. X

Further References (compiled by Yoo-Seong Song, Librarian, Institute of Labor and Industrial Relations Library, University of Illinois at Urbana-Champaign) Adler, Joseph. THE PAST AS PROLOGUE? A BRIEF HISTORY OF THE LABOR MOVEMENT IN THE UNITED STATES. PUBLIC PERSONNEL MANAGEMENT. Vol. 35,

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no. 4. Winter 2006. pp.311-329.

The author presents an excellent historical overview of labor unions in the public sector. While the membership in labor unions in the private sector has declined over the years, the opposite phenomenon has occurred in the public sector with over 40 percent of penetration rate among the public employees. Arguing that the recent split within the AFL-CIO may have both positive and negative implications to public sector unions, the author illustrates how the past rise and fall of labor unions in the private sector can be a lesson for public sector unions in terms of future directions. Some possible scenarios are presented in regards to the future public sector union movement. The author appears to believe that the current turmoil between the AFL and CIO will eventually lead to reinvigoration and revitalization of public sector labor activities.

Calo, Thomas. THE PSYCHOLOGICAL CONTRACT AND THE UNION CONTRACT: A PARADIGM SHIFT IN PUBLIC SECTOR EMPLOYEE RELATIONS. PUBLIC PERSONNEL MANAGEMENT. Vol. 35, no.

4. Winter 2006. pp.331-342.

Union membership in the private sector has suffered a steep decline over the past 40 years, while the public sector has seen a steady increase in membership. The author first explores this issue by investigating the reasons for this discrepancy between the two sectors. He then argues that labor relations in the public sector must change in response to the growing power of public sector unions and proposes models of positive public employee relations when public unions are gaining more influence and impact.

(Books and articles anotated in Further References are available on interlibary loan through ILLINET by contacting your local public library or system headquarters.)

IPER REPORT

Winter 2007

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Illinois Public Employee Relations Report . . .

Published quarterly by The Institute of Labor and Industrial Relations University of Illinois at Urbana-Champaign and Chicago-Kent College of Law llinois Institute of Technology, (ISSN 1559-9892), 565 West Adams Street, Chicago, Illinois 60661-3691.

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