The United Parcel Service (NYSE: UPS) and the Teamster's Union have reached agreement on the proposal Douglas McIntyre wrote about here last week. A new five-year contract, to be voted upon by the Teamsters' UPS employees, would transfer the 43,000 UPS employees currently enrolled in the Central States Pension Fund, which covers almost 400,000 union members from a number of companies, into their own pension fund, funded by UPS and administered cooperatively by UPS and the union. The contract would require UPS to make a one-time pre-tax payment of $6.1 billion to the CSPF to make up for its loss of members.

UPS is the largest employer of Teamsters, with around 240,000 covered by this contract proposal. The union claims that the new pact will not only better secure pension rights, but also bring increased wages and safeguard medical coverage for current and retired UPS workers. According the to The Wall Street Journal [subscription], the new contract would increase wages and benefits by $9 per hour over five years.

Critics of the proposal worry that, for the union, culling the UPS workers from the already-underfunded CSPF could weaken the pension security of non-UPS union workers. While UPS claims that the agreement will help it remain competitive, any cost-capping features in the contract that will allow them to compete with mostly non-union FedEx have yet to be specified.

Both sides claim to be pleased that accord was reached upon almost a year before the previous contract was due to expire. For the union, it will allow the members to vote on, and hopefully pass, the contract in time to beat new pension regulations that take affect January 1. For UPS, the pact secures an uninterrupted labor force for many years to come.

United Parcel Service Inc. (NYSE: UPS) plans to set up a pool of money that will be run by the Teamsters. The capital will become the new health fund for employees at the company. First, UPS will pull out of the Central States Pension Fund, which handles benefits for a number of trucking companies.

According to The Wall Street Journal (subscription required), "the move would shed an annual expense that reached $1.4 billion in 2006, up 14% from a year earlier." The plan is not unlike the one that General Motors Corp. (NYSE: GM) has negotiated with the UAW.

These deals are good for the companies, but are they good for the unions? They do often get job guarantees for their members as part of the contract. But, the new funds can lose value, and their ability to cover employee health care costs. Several years ago, a fund established for Caterpillar Inc. (NYSE: CAT) employees ran out of money.

Big labor may believe that it is doing a good job for it members who are in the workforce now. But, it may not be doing them any favors as they get older.

Douglas A. McIntyre is a partner at 24/7 Wall St.