[Marxism] BW: Pleading poverty over pensions
marvgandall at rogers.com
Fri Jul 16 15:46:28 MDT 2004
The cover story of the same issue of Business Week describes the massive
effort being undertaken by US corporations to divest themselves of their
pension obligations to their employees and retirees. Most of the attacks are
aimed at the defined-benefit plans negotiated by once-strong unions in the
auto, steel, rubber, textile, and airline industries. Unionized employers
everywhere are demanding concessions from their workers on grounds they can’
t compete with new entrants whose unorganized workforces are covered by
inferior defined-contribution plans like the 401k’s.
Insolvent firms like United Airlines and Bethlehem Steel have dumped their
pension obligations onto the government’s Pension Benefits Guaranty Corp,
which then savagely marks down the future payout to employees. Profitable
companies like IBM and General Motors have used the threat of lower-cost
competition to cap defined benefits for workers, eliminate them for new
hires, and roll back health coverage for retirees. The article also
describes Congressional assent for the habitual manipulation of interest
rate and other economic projections by companies to demonstrate actuarial
shortfalls in their plans.
The Benefits Trap
By Nanette Byrnes
JULY 19, 2004
Old-line companies have pledged a trillion dollars to retirees. Now they're
struggling to compete with new rivals, and many can't pay the bill.
June 28 was the day hope ran out for United Airlines' 35,000 retirees. That
was the day the government announced it would not guarantee the bankrupt
airline's loans -- virtually assuring that if UAL Corp., (UALAQ ) the
airline's parent, is to remain in business it will have to chop away at
expensive pension and retiree medical benefits. The numbers are daunting.
UAL owes $598 million in pension payments between now and Oct. 15, and a
total of $4.1 billion by the end of 2008, plus an additional $1 billion for
retiree health-care benefits, obligations the ailing airline can't begin to
meet. And if United finds a way to get out of its promises, competitors
American Airlines (AMR ), Delta Air Lines (DAL ), and Northwest Airlines
(NWAC ) are sure to try to as well.
UAL workers are about to find out what other airline employees already know:
The cost of broken retirement promises can be steep. Captain Tim Baker, a
19-year veteran of US Airways Inc. (UAIR ), was one of several union
representatives sorting through that airline's complicated bankruptcy
negotiations in March, 2003. Of the airline's many crises, the biggest was
the pilots' pension plan, a sinkhole of unfunded liabilities. Baker
reluctantly agreed to back US Airways' proposal to dump the pension plan on
the Pension Benefit Guaranty Corp. (PBGC), the government agency that is the
insurer of last resort for hopelessly broken plans. It's a move that
practically guarantees that retirees will receive less than they were
promised, in some cases less than 50 cents on the dollar. But of a raft of
bad options, it seemed the only one that could keep the company afloat. "It
was the pension underfunding and its future requirements that were going to
put in jeopardy the airline's ability to get out of bankruptcy," says Baker.
"At some point you have to look around and say that is all there is."
Baker has paid dearly for that decision. He was voted out of his union
position by angry fellow pilots and instead of the six-figure annual pension
he was promised, when he retires in 15 years he'll get just $28,585 a year
from the PBGC, plus whatever he can save in his 401(k).
Stories like Baker's are becoming dreadfully common as employers faced with
mounting retiree costs look to get out from under. It's not just troubled
industries like airlines that are abandoning their role as retirement
sponsors to America's workers, either. The escalating cost of retirement
plans is a critical issue at a range of long-established companies from
Boeing (BA ) to Ford Motor (F ) to IBM (IBM ), many of which compete against
younger companies with little or nothing in retiree costs.
As employers abandon ever-more-costly traditional retirement plans, the
burden is falling on individuals and taxpayers.
Why are retirees being left out in the cold? An unsavory brew of factors
have come together to put stress on the retirement system like never before.
First, there's the simple fact that Americans are living longer in
retirement, and that costs more. Next come internal corporate issues,
including soaring health-care costs and long-term underfunding of pension
promises. Perhaps most important, in the global economy, long-established
U.S. companies are competing against younger rivals here and abroad that pay
little or nothing toward their workers' retirement, giving the older
companies a huge incentive to dump their plans. "The house isn't burning
now, but we will have a crisis soon if some of these issues aren't fixed,"
says Steven A. Kandarian, who ended a two-year stint as the executive
director of the PBGC in February. Kandarian is not optimistic about how that
crisis might play out, either. "By that time it will be too late to save the
system. Then you just play triage."
As industry after industry and company after company strive to limit -- or
eliminate -- their so-called legacy costs, a historic shift is taking place.
No one voted on it and Congress never debated the issue, but with little
fanfare we have entered into a vast reorganization of our retirement system,
from employer funded to employee and government funded, a sort of stealth
nationalization of retirement. As the burden moves from companies to
individuals -- who have traditionally been notoriously poor planners -- it
becomes near certain that in the end, a bigger portion will fall on the
shoulders of taxpayers. "Where the vacuum develops, the government is forced
to step in," says Sylvester J. Schieber, a vice-president at
benefit-consulting firm Watson Wyatt Worldwide (WW ). "If we think we can
walk away from these obligations scot-free, that's just a dream."
EVIDENCE OF THE SHIFT is everywhere. Traditional pensions -- so-called
"defined-benefit" plans -- and retiree health insurance were once all but
universal at large companies. Today experts can think of no major company
that has instituted guaranteed pensions in the past decade. None of the
companies that have become household names in recent times have them: not
Microsoft (MSFT ), not Wal-Mart Stores (WMT ), not Southwest Airlines
(LUV ). In 1999, IBM, which has old-style benefits and contributed almost $4
billion to shore up its pension plans in 2002, did a study of its
competitors and found 75% did not offer a pension plan and fewer still paid
for retiree health care.
Instead, companies are much more likely to offer defined-contribution plans,
such as 401(k)s, to which they contribute a set amount. In 1977, there were
14.6 million people with defined-contribution benefits; today there are an
estimated 62.5 million. Part of their appeal has been that a more mobile
workforce can take their benefits with them as they hop from job to job. But
just as important, they cost less for employers. Donald E. Fuerst, a
retirement actuary at Mercer Human Resource Consulting LLC, notes that while
even a well-matched 401(k) often costs no more than 3% of payroll, a typical
defined-benefit plan can cost 5% to 6% of payroll.
Despite the stampede to defined-contribution plans, there are still 44
million Americans covered by old-fashioned pensions that promise a set
payout at retirement. All told, they're owed more than $1 trillion by 30,000
different companies. Many of those employers have also promised tens of
billions of dollars more in health-care coverage for retirees. Even
transferring a small part of the burden to individuals or the government can
have a profound impact on the corporate bottom line. The decision by
Congress to have Medicare cover the cost of prescription drugs, for example,
will lighten corporate retiree health-care obligations by billions of
dollars. Equipment maker Deere & Co. (DE ) estimates that the move will
shave $300 million to $400 million off its future health-care liabilities
starting this year.
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