Public Comment

Commentary: Pension Fund Problems Behind Berkeley Honda Dispute By JIM DOTEN

Tuesday January 24, 2006

First of all, I want to say that despite all the turmoil that has occurred since I sold my Honda dealership, I have been pleased at so many positive references to how Jim Doten Honda was viewed by the Berkeley community. That is very important to me. I want to assure all the citizens of Berkeley that I sold the franchise to a group in whom I have the utmost confidence. I believe that they are committed to being good corporate citizens and have the talent, dedication and wherewithal to grow the business to new levels, providing many more jobs and sales tax revenues to the community that I have served for 31 years. 

So what do I think of the strike? I’m glad you asked. 

I believe that the strike and boycott against Berkeley Honda is one of the most misguided and misdirected invectives I have ever witnessed. The union would have you believe that it is about people, but it clearly has nothing to do with people. Sadly, the good citizens of Berkeley are being fed a line by the union to stir their emotions and cause them to rush to the defense of the “wronged employees.” I believe that the owners of Berkeley Honda made not only legal, but sound business decisions in their hiring of staff for the new operation, an opinion that is shared by the NLRB. That is why the union dropped its unfair labor practices lawsuit so quickly. So why has all the hoopla continued and why has it gone on for so long? It is being done for one reason and one reason alone: To divert you from the real issue, which is the incompetence of the union and its pension plan. 

How am I so sure of that? I’m glad you asked. 

Two days after Christmas I received a thank you gift from the Automotive Industries Pension Plan. It was a bill for $543,878.36 for which I am personally responsible. As an additional present they graciously gave me the opportunity to pay this bill over three and a half years bringing the yuletide total demand to just shy of $600,000. Let me say again so you don’t miss it: six hundred thousand dollars. And to top it off, it all comes from after-tax dollars. This, after having paid every contribution for every employee that I was required to, on time, for the past 31 years. It is a tremendous amount of money, $541,923 in the past five years alone. The letter (whose salutation should have been “Greetings”) went on to point out that the unfunded vested liability of the plan was $141,495,878 at the end of 2004. To put that in perspective, the amount of the fund deficit was equal to the gross domestic product of Argentina! It is projected that as of year-end 2005 the unfunded vested liability will be $200 million. The amount I am being asked to pay is my pro-rata share, based on my contributions over the past five years. So the more I paid in, the more of the unfunded liability I am being asked to cover. 

So how did that unfunded liability occur? I’m glad you asked. 

Pension funds across this country are being faced with many problems, some of which are not in their control. The fact that Americans are living longer, while good news for all of us, has made the actuarial data used to establish these plans inaccurate. Another problem is the declining membership in the trade unions, meaning that there are less current workers to support more retired workers. These are problems over which there is little control. Other reasons leading to unfunded liabilities are poor investment decisions and actions taken by the trustees of the plan. The pension fund, like so many others, has suffered with the economy. I grant that the vagaries of the capital markets have bested some fine money managers. Let’s suffice it to say that modest growth is the least to be expected from a fund devoted to retirement benefits ... and this fund has not experienced modest growth. Despite that fact, it is the actions of the trustees on which I would like to focus. 

In 2001 the plan actually had a surplus of $150 million. The decision of the trustees was to give everyone a raise. The benefit payout percentage was increased from 4.2 percent to 5 percent per month. This increase was made retroactive to 1955. This means that a fully vested retiree would see a monthly retirement check equal to 5 percent of each and every monthly contribution made for them since 1955. What a great windfall for everyone. However the fund had a $0 surplus by the end of 2002, a $50 million deficit by the end of 2003 and the spiral continues. And now, to cover that deficit, they are coming after me, and any other dealer who has the desire to sell their dealership. You may not like businessmen but I ask you how fair it is, that after dutifully paying into their fund for all these years, I have to pay for their money grab. 

Additionally, in reaction to the deficits, and since the fund is precluded by law from taking away any benefits already given, they started dropping the payout percentage going forward. That percentage is now effectively down to 1.17 percent for current members of the machinists union. That means for every $450 monthly contribution that Berkeley Honda makes for each employee, that employee will see $5.27 per month in retirement benefits. Just three years ago the same $450 contribution would have brought $22.50 per month in retirement benefits. The new owners would prefer to see that their employees get the maximum benefit from the money put aside for them. 

I have to admit that I was unaware of the potential liability when I signed the union agreement. I am now being asked to pay a tremendous price for the oversight. The owners of Berkeley Honda were smart enough to actually read the pension plan trust agreement prior to signing the union agreement and saw it would make them personally liable for potentially millions of dollars over which they had no control. No rational person would agree to such a deal especially in light of the fund’s performance over the past several years. Their counter offer to put the same amount of money into 401(k)s for each employee is not only prudent, it shows an actual concern that their employees end up receiving the money they are entitled to receive. Yet the union keeps feeding people with misleading information so that they don’t have to face the real issue. While I respect the people of Berkeley and their concern for workers, this concern would be better aimed at the union. This protest ought to be conducted at the union headquarters and not at Berkeley Honda. Every union member ought to be questioning how their union could allow their pension to get into the state that it is in. Every union member ought to be questioning whether the union really care about them or about covering their own behind.  

Don’t shoot the messenger just because you don’t like the message. That is just my opinion. 

I’m glad you asked. 


Jim Doten is the former owner of  

Berkeley Honda.