Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Pensions: The Next Casualty of Wall StreetFrom Mark Brenner at Labor Notes:Pensions: The Next Casualty of Wall Street By Mark Brenner Nobody wants to admit it, but the next casualty of the Wall Street meltdown will probably be your golden years. For years corporations have been trying to choke the life out of traditional pensions, working hard to get out from under the risk—and the cost—of providing for their retirees. Between last year's credit crunch and changes to federal pension laws, they may get their wish. Nearly $4 trillion worth of retirement savings were wiped out in the first weeks of the 2008 financial freefall. Half of the drop was concentrated in traditional pension plans, also known as defined-benefit plans. While most workers in these plans haven't had their monthly benefits cut, unlike the 46 million people riding the stock market with 401(k) defined-contribution plans, the storm clouds are gathering. Labor needs a strategy to protect what we've won. But holding our ground requires moving from defense to offense. If the pension crisis is going to be solved for union members, it has to be solved for everyone. UNCOMFORTABLE ARITHMETIC Even before the financial crisis, traditional pensions were a vanishing breed. Thirty years ago more than a third of the private sector workforce had traditional pensions. Last year that number was down to 16 percent. Driving the decline were employers looking to get off cheap, eliminating pensions entirely when they could get away with it, and when they couldn't, shifting to 401(k)s. These programs were legalized in 1978 and were originally designed to supplement traditional pensions. Now they're choking them out like kudzu. Corporations got a great deal, paying about half what they used to towards their workers' retirement by the '90s. Even more important—as anyone who has opened their 401(k) statement recently can attest—the move shifted risk off companies and onto us. Traditional pensions were a collective solution to a collective problem. Young and old contributing together smoothed out insecurity for all. Now it's just you and the stock market—with far less in your pocket. Even before the crash, studies showed that 401(k)s leave workers with 10 to 33 percent of what traditional pensions provide. Given the 30-year squeeze on wages, most people haven't saved much either, which explains why more than half of all 401(k) participants have less than $75,000 when they retire. WHAT'S IN STORE? Even for those with superior defined-benefit plans, the last 20 years have been rocky. Companies spent much of the 1990s gaming the system, siphoning off pension funds to pad the bottom line. At the start of this year the nation's defined-benefit pension plans had only about 75 percent of what they owed participants. Companies may need to contribute as much as $100 billion to cover these gaps. Although Congress waived compliance with new pension rules this year, the law will eventually take effect, and will force employers to cover these pension gaps. Rather than clean up their act, more and more employers are looking for the exit. By April of this year nearly a third of America's largest companies had frozen their pension plans. Many others are invoking the nuclear option, declaring bankruptcy as a way to unload their pension plans on the taxpayers. Unfortunately, the Pension Benefit Guaranty Corporation (PBGC), established in 1975 to backstop private sector pensions, is already reeling from a decade of high-profile and expensive pension defaults at companies like United Airlines and steelmaker LTV. Nine of the 10 largest pension defaults in history occurred since 2000, leaving the PBGC with a deficit of $11 billion at the end of 2008. That gap could swell to more than $100 billion over the next few years, amounting to a backdoor bailout for big corporations, and a bitter pill for abandoned retirees. Workers at Republic Steel saw first hand how it works when they had their pensions cut by $1,000 a month in 2002 by the PBGC and then cut again in 2004. Five workers from the Lorain, Ohio, plant committed suicide after the first time their pension was diminished. In the second round of cuts, retirees like Bruce Bostick, former grievance chair for USW Local 1104, saw their retirements fall from $1,047 a month to $125. The situation for public sector workers isn't much better. Although 80 percent of public employees have traditional pensions, those benefits are now in the cross-hairs of conservative and liberal politicians. Two-thirds of public sector pension plans are underfunded—to the tune of $430 billion—and state and local budget crises are pitting taxpayers against public employees from California to Maine. ANCHORING RETIREMENT For nearly 20 years the various financial bubbles—from the dot-com frenzy of the 1990s to the recent housing market run-up—papered over the urgent need to address the faltering retirement system. Wall Street's collapse last year revealed how the current patchwork of retirement plans is failing almost everyone. As with health benefits, union workers with stable pensions increasingly find themselves on an island of security in a sea of uncertainty. But the water is rising rapidly. As the debate over the auto bailout and state budget crises revealed, defending your own decent pension is tough work when half the workers in the country don't have any retirement at all. The PBGC—which has been swimming in red ink since 2002—is currently set up to pay less than half of what people were promised. If the funding gaps widen, it could fall to pennies on the dollar. There will be calls to bail the PBGC out—which needs to happen—1.2 million people now depend on it. A sensible demand is to make it function more like the FDIC, by guaranteeing 100 percent of pension benefits up to a reasonable threshold. But reform can't stop there. If it does, workers are on the same path as before the economic collapse, with a temporary reprieve. Employers will still seek to drive union workers down to non-union standards and dump more risk onto individuals. We need to return to the original vision of Social Security: a program that (like in Western European nations) can actually pay for most of your old-age living expenses. Read the original article. Labels: 401(k), financial crisis, Pension Benefit Guarantee Corporation, pensions, Social Security, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Companies Suspending 401(k) ContributionsFrom the Financial Times, March 11 (hat-tip to The Automatic Earth). The article notes that the median size of a 401(k) account at the end of 2007 was $19,000--probably a lot lower now!A wave of US companies are suspending payments to their staff 401(k) retirement plans in a bid to cut costs amid the economic downturn.Read the rest here. Labels: 401(k), AARP, Financial Times, pensions, The Automatic Earth blog Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Big Holes For 401k and Pension FundsPrivate sector pensions of the S&P's index of the 1,500 largest private companies are underfunded by over $400 billion. The deficits have resulted entirely during the financial crisis of 2008, according to an analysis in the Washington Post.According to the Post
In a related item, the Wall Street Journal reports that 401(k)'s have taken a massive hit just as Baby Boomers are gearing up to retire: About 50 million Americans have 401(k) plans, which have $2.5 trillion in total assets, estimates the Employee Benefit Research Institute in Washington. In the 12 months following the stock market's peak in October 2007, more than $1 trillion worth of stock value held in 401(k)s and other "defined-contribution" plans was wiped out, according to the Boston College research center. If individual retirement accounts, which consist largely of money rolled over from 401(k)s, are taken into account, about $2 trillion of stock value evaporated. Full WSJ article here. Labels: 401(k), pensions, retirement Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The End of Pensions?By Shamus Cooke | December 15, 2008Unless things change fast, human history will show that the phenomenon of "retirement" was limited to one generation. After World War II, when European and Japanese economies stood in tatters, American capitalism could fulfill "the American dream," since there was little foreign competition to speak of. For the first time ever, workers were promised that—after working thirty or so years—they would be able to securely retire. That was largely the case...for one generation. The second generation is having a devastating reality check. 2008 was supposed to be a watershed year for retirement: it was the first year that the baby-boomers turned 62, and the retirement frenzy was to begin (since people could begin to draw on their social security benefits). Early in the year, however, a study was conducted that found one-fourth of these boomers were delaying retirement (only the baby-boomers who were actually able to plan for retirement were studied). The economy has since nosedived, and many more retirements are being delayed. The unfortunate reality is that many who planned on retiring will work until the grave, joining the millions of other baby-boomers who never had such dreams. The experts are calling this the "perfect storm" for retirement. Everything that could go wrong is in fact going wrong. This storm, however, was not created by supernatural forces, but the coordinated effort of big-business and their puppet politicians. The deliberate destruction of the pension and its replacement by the 401(k) was, of course, a giant step towards attacking retirement; but now that the economic crisis has emerged, we're beginning to see just how ruinous the effects are. At the end of September, just as the crisis was beginning to gain steam, it was discovered that in the previous year the value of stocks in 401(k) accounts had fallen by nearly $2 trillion! Much more has been lost since then. This is especially devastating since almost one-third of 401(k) participants in their 60s had 80 percent of their money in stocks (pension funds have been similarly destroyed). The 401(k) was the scheme of the century. Corporations offloaded their "burdensome" pensions and used the combined forces of the media and politicians to sell the ruse to the public, to the great benefit of Wall Street. Workers were told that the boom-slump cycle was over, and that stocks were a sure thing. There were additional factors to invest in stocks: interest rates were so low that investing in bonds and other less-risky instruments offered only tiny returns; and since employers stopped contributing to retirement funds, a bigger return was required. More importantly, corporations have been driving down real wages since the seventies, allowing less money to be saved for retirement, creating a mood of desperation. Every "safe bet" for investing has been proven unsafe; the recession has left nothing untouched. After the dotcom bubble burst—taking with it millions of people's 401(k) savings—the housing market became the place to invest. Now the safest possible investment, too, has turned sour. For millions of people, the home they lived in was their nest egg, which they had planned to sell and move into a smaller place. No more. Rep. Robert Andrews (D-NJ), who chairs the House subcommittee on health, employment, labor and pensions, put it bluntly: "Some will have very little, some will have almost nothing, and some will have nothing when they retire". Of course, people who "have nothing" do not retire. This process is being accelerated by the newest trick of big business: declaring bankruptcy to destroy "pension obligations". These obligations apply with equal weight to workers already retired, many of whom are seeing their pensions slashed in half, forcing them out of retirement. Now even the threat of bankruptcy is constantly used in union contract negotiations to scare workers into concessions, since after achieving bankruptcy, labor agreements are torn up. The threat of closing the company's doors is a very effective form of intimidation. This phenomenon is at the center of the GM debate. The corporate politicians in congress cannot decide whether to appoint a "Car Tsar" to oversee the destruction of the autoworkers pensions, or use the proven method of bankruptcy. Not a day goes by that the corporate media doesn't join hands to assail the pension and health care benefits of the "spoiled" GM workers. The hypocrisy is sickening. This after the UAW had already agreed to the most shameful concessions in 2007. Although concessions are often made in the name of "job security," the result is that corporations become emboldened by such acts. Eventually, every benefit of workers that contradicts company profit will be targeted. The demand for concessions never stops, and soon the point arrives when the benefits of having a union become questioned, since dues money is not paid with concessions in mind. The autoworkers struggle is at the forefront of the pension battle nationwide, since their struggles in the 1930's originally paved the way for pensions. Equally important is the pension struggles emerging with public employees, the last stronghold of workers who receive them. Public employees will find their pensions under immense attack as the economic crisis intensifies, and government budgets are depleted. Fighting the corporate strategy of bankruptcy and business closures is an immediate need of working people. This tactic will increase in number as the crisis deepens and companies strive to "restore profitability" by drastically lowering wages. If a company attempts such a criminal act, the workers should demand a bailout for themselves; the government should take over the plant so that the workers can keep their jobs, such as was done for the banks. Management must be sacked and instead of a government bureaucrat, the workers themselves should run the business. To win this program, new levels of organizing and solidarity are needed, such as the example of the United Electrical Workers, who occupied their factory and organized in a brilliant fashion. They won a stunning victory by utilizing the methods of the original autoworkers struggles from the 1930's. If a fight is to be waged, it must be done seriously and with determination, uniting both retired and active workers. The UEW workers have shown the way forward for the labor movement, which can no longer rely on union concessions or the promises of Democratic politicians, but only their own collective strength. Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action. He can be reached at shamuscook-at-yahoo.com Labels: 401(k), bankruptcy, pensions, Republic Windows and Doors, retirement, Social Security, unions, United Electrical Workers Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
