Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Social Security LootersWe received this comment from Matthew Skomarovsky of LittleSis, the "involuntary Facebook of powerful Americans" (if you haven't check out LittleSis, you should do so asap):"Props as always to D&S for not letting this slip under the radar. Far too little attention has been given to how well the Social Security looters have positioned themselves in 2010. "Here's a close look at Obama's recent appointments to the Debt Commission, and what it suggests about his administration's approach to Social Security:" Obama Packs Debt Commission with Social Security Looters Check out the full article on AlterNet or LittleSis. Labels: Barack Obama, LittleSis, Matthew Skomarovsky, pensions, privatization, Social Security Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Drumbeats on Social SecurityThe New York Times had something of a scare-mongering front-page article on Social Security the other day. The new reason for concern, the Times suggested, is that payout is expected to exceed pay-in this year. But as Dean Baker pointed out on his Beat the Press blog, "this fact makes absolutely no difference for the program since it holds more than $2.5 trillion in government bonds." Dean goes on:In spite of the statements by the experts cited in the article, the second paragraph told readers that this event marked: "an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office." Nothing in the article or in the structure of the program suggests that there is any importance whatsoever to this threshold. Read the full post, in which Dean responds to challenges from commenters. Meanwhile, the Times included a discussion of Social Security in its online feature, Room for Debate, albeit under the question-begging headline "Simple Steps to Fix Social Security"; the Times seems to welcome debate among experts on Social Security, as long as they agree that it is broken! Economist Teresa Ghilarducci, who has written about pensions for Dollars & Sense ("When Bad Things Happen to Good Pensions," from our May/June 2005 issue), didn't take the Times' bait. The headline to her contribution to the debate states simply that "The Program Isn't Broken." The adjustment she recommends is the same one John Miller recommended in our March/April 2008 issue (Go Ahead and Lift the Cap), which is to raise the cap on taxable earnings from 85% to 100%: Because baby boomers pay more payroll tax than the system is paying out in benefits, boomers have saved for their own retirement most of their working years. They may have run up their credit cards, but they saved through the Social Security system. These excess payroll taxes bought special-issue government bonds that always paid above the market rate for risk-free government noncallable bonds; these bonds were created especially for the Social Security taxpayers. Well done, Teresa. More on the coming drumbeat to mess with Social Security over at AlterNet: Alan Greenspan and the New York Times Are Gunning for Your Social Security, by Zach Carter. For more background, see Ellen Frank, John Miller, and Doug Orr on Social Security in the D&S archives. Labels: New York Times, pensions, privatization, Social Security, Teresa Ghilarducci Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Maybe We Were a Tad Premature...in our choice of the next bailout candidate. And this one surely needs watching in the longer-term. It's the Pension Benefit Guaranty Corp (PBGC). From Calculated Risk:Pension Benefit Guaranty Corporation Deficit Increases by CalculatedRisk on 11/14/2009 11:58:00 AM The Pension Benefit Guaranty Corporation (PBGC) is the federal agency that guarantees pensions for 44 million Americans. The PBGC deficit doubled over the last six months to $22 billion ... but this is only just the beginning as the agency's potential exposure to future losses increased sharply. From the Pension Benefit Guaranty Corporation (PBGC): PBGC Releases Annual Management Report for Fiscal Year 2009 The Pension Benefit Guaranty Corporation (PBGC) ended fiscal year 2009 with an overall deficit of $22 billion, according to the agency's Annual Management Report submitted to Congress today. The result compares with the $11.2 billion deficit recorded at the previous fiscal year-end on September 30, 2008. ... The Annual Management Report classified 27 large pension plans with total underfunding of $1.64 billion as probable losses on the PBGC balance sheet. The report also shows that the agency's potential exposure to future pension losses from financially weak companies increased to about $168 billion from the $47 billion booked in fiscal year 2008. "Exposure to possible future terminations means that we could face much higher deficits in the future," said Acting Director Vincent K. Snowbarger. "We won't fail to meet our obligations to retirees, but ultimately we will need a long-term solution to stabilize the pension insurance program." (emphasis added) With companies moving away from defined benefit plans, there will be fewer companies paying for insurance in the future--and the "long-term solution" will probably involve some sort of bailout. Labels: Calculated Risk, financial crisis bailout, Pension Benefit Guarantee Corporation, pensions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 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!). Grand Theft Auto (Greg Palast)Greg Palast's take on the GM bankruptcy:Grand Theft Auto: How Stevie the Rat bankrupted GM by Greg Palast Monday, June 1, 2009 They may be crying about General Motors' bankruptcy today. But dumping 40,000 of the last 60,000 union jobs into a mass grave won't spoil Jamie Dimon's day. Dimon is the CEO of JP Morgan Chase bank. While GM workers are losing their retirement health benefits, their jobs, their life savings; while shareholders are getting zilch and many creditors getting hosed, a few privileged GM lenders—led by Morgan and Citibank—expect to get back 100% of their loans to GM, a stunning $6 billion. The way these banks are getting their $6 billion bonanza is stone cold illegal. I smell a rat. Stevie the Rat, to be precise. Steven Rattner, Barack Obama's 'Car Czar'—the man who essentially ordered GM into bankruptcy this morning. When a company goes bankrupt, everyone takes a hit: fair or not, workers lose some contract wages, stockholders get wiped out and creditors get fragments of what's left. That's the law. What workers don't lose are their pensions (including old-age health funds) already taken from their wages and held in their name. But not this time. Stevie the Rat has a different plan for GM: grab the pension funds to pay off Morgan and Citi. Here's the scheme: Rattner is demanding the bankruptcy court simply wipe away the money GM owes workers for their retirement health insurance. Cash in the insurance fund would be replaced by GM stock. The percentage may be 17% of GM's stock—or 25%. Whatever, 17% or 25% is worth, well ... just try paying for your dialysis with 50 shares of bankrupt auto stock. Yet Citibank and Morgan, says Rattner, should get their whole enchilada - $6 billion right now and in cash—from a company that can't pay for auto parts or worker eye exams. Preventive Detention for Pensions So what's wrong with seizing workers' pension fund money in a bankruptcy? The answer, Mr. Obama, Mr. Law Professor, is that it's illegal. In 1974, after a series of scandalous take-downs of pension and retirement funds during the Nixon era, Congress passed the Employee Retirement Income Security Act. ERISA says you can't seize workers' pension funds (whether monthly payments or health insurance) any more than you can seize their private bank accounts. And that's because they are the same thing: workers give up wages in return for retirement benefits. The law is darn explicit that grabbing pension money is a no-no. Company executives must hold these retirement funds as "fiduciaries." Here's the law, Professor Obama, as described on the government's own web site under the heading, "Health Plans and Benefits": "The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits." Every business in America that runs short of cash would love to dip into retirement kitties, but it's not their money any more than a banker can seize your account when the bank's a little short. A plan's assets are for the plan's members only, not for Mr. Dimon nor Mr. Rubin. Read the rest of the article. Labels: auto industry, bankruptcy, General Motors, Greg Palast, JP Morgan Chase, pensions, Steven Rattner Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Pensions Plans in PerilIf the auto industry is allowed to dump their pension plans through bankruptcy, it could put the pensions of millions of other retired workers at risk. The Pension Benefit Guarantee Corporation, the government insurer that backs pension plans, would quickly run out of funds and be overwhelmed with claims. It would be forced to slash promised benefits to retirees. It would also open the door to other companies looking to dump their pension obligations through bankruptcy court.The dire state of the Pension Benefit Guarantee Corporation's decision to gamble its money in the stock market certainly hasn't helped things, as we noted here earlier this month. The holes in the pension fund and related dire circumstances of 401(k) programs have been apparent for some time. James Ridgeway reported on corporate America's plans to ditch their obligations to retired workers back in this article from 1999. We can only hope that the current situation will put an end to any more calls to privatize Social Security, which is becoming the default retirement plan for more and more Americans. From the NYT: Pension experts predict that a government takeover of the two giant plans would spur other auto companies and all types of manufacturers to abandon such benefits for competitive reasons. --d.f. Labels: auto industry, Daniel Fireside, Pension Benefit Guarantee Corporation, pensions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Pension Guarantee Corp Going Into StocksOn Monday, the Boston Globe reported what appears to be a scandal with the Pension Benefit Guarantee Corporation, the agency that backs pensions for more than 44 million Americans.According to the story
Blogger Roberto W on TPM notes that the push into stocks and real estate was orchestrated under the leadership of Bush-appointed PBGC head Charles E.F. Millard, formerly of the Lehman Brothers (the company formerly known as a financial services firm until they went bankrupt), and also formerly of Broadway Real Estate Partners. In his column for Time, Justin Fox thinks that it's premature to call this a scandal because the company hadn't changed its investment portfolio as of the end of FY08, however he fails to comprehend that FY08 ended in September (when the market started to tank) and that the corporation refused to release up-to-date numbers to the Globe. If we've learned anything from the AIG debacle, it should be that you don't go gambling with the insurance fund. Labels: Lehman Brothers, Pension Benefit Guarantee Corporation, pensions 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!). Huge Protest over Irish EconomyFrom the BBC:Huge protest over Irish economy Up to 100,000 people have gathered in Dublin city centre to protest at the Irish government's handling of the country's recession. Many are angry at plans to impose a pension levy on public sector workers. Trade union organisers of the march said workers did not cause the economic crisis but were having to pay for it. In a statement, the Irish government said it recognised that the measures it was taking were "difficult and in some cases painful". The pension levy was "reasonable", the government said. reflecting "the reality that we are not in a position to continue to meet the public service pay bill in the circumstances of declining revenue". Read the rest of the article Labels: bailout, financial crisis, Ireland, labor unrest, pensions 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!). Destroying What the UAW BuiltFrom yesterday's Washington Post:By Harold Meyerson Wednesday, December 17, 2008; A17 In 1949, a pamphlet was published that argued that the American auto industry should pursue a different direction. Titled "A Small Car Named Desire," the pamphlet suggested that Detroit not put all its bets on bigness, that a substantial share of American consumers would welcome smaller cars that cost less and burned fuel more efficiently. The pamphlet's author was the research department of the United Auto Workers. By the standards of the postwar UAW, there was nothing exceptional about "A Small Car Named Desire." In its glory days, under the leadership of Walter Reuther, the UAW was the most farsighted institution—not just the most farsighted union—in America. "We are the architects of America's future," Reuther told the delegates at the union's 1947 convention, where his supporters won control of what was already the nation's leading union. Even before he became UAW president, Reuther and a team of brilliant lieutenants would drive the Big Three's top executives crazy by producing a steady stream of proposals for management. In the immediate aftermath of Pearl Harbor, Reuther, then head of the union's General Motors division, came up with a detailed plan for converting auto plants to defense factories more quickly than the industry's leaders did. At the end of the war, he led a strike at GM with a set of demands that included putting union and public representatives on GM's board. That proved to be a bridge too far. Instead, by the early 1950s, the UAW had secured a number of contractual innovations—annual cost-of-living adjustments, for instance—that set a pattern for the rest of American industry and created the broadly shared prosperity enjoyed by the nation in the 30 years after World War II. The architects did not stop there. During the Reuther years, the UAW also used its resources to incubate every up-and-coming liberal movement in America. It was the UAW that funded the great 1963 March on Washington and provided the first serious financial backing for César Chávez's fledgling farm workers union. The union took a lively interest in the birth of a student movement in the early '60s, providing its conference center in Port Huron, Mich., to a group called Students for a Democratic Society when the group wanted to draft and debate its manifesto. Later that decade, the union provided resources to help the National Organization for Women get off the ground and helped fund the first Earth Day. And for decades after Reuther's death in a 1970 plane crash, the UAW was among the foremost advocates of national health care—a policy that, had it been enacted, would have saved the Big Three tens of billions of dollars in health insurance expenses, but which the Big Three themselves were until recently too ideologically hidebound to support. Narrow? Parochial? The UAW not only built the American middle class but helped engender every movement at the center of American liberalism today—which is one reason that conservatives have always held the union in particular disdain. Over the past several weeks, it has become clear that the Republican right hates the UAW so much that it would prefer to plunge the nation into a depression rather than craft a bridge loan that doesn't single out the auto industry's unionized workers for punishment. (As manufacturing consultant Michael Wessel pointed out, no Republican demanded that Big Three executives have their pay permanently reduced to the relatively spartan levels of Japanese auto executives' pay.) Today, setting the terms of that loan has become the final task of the Bush presidency, which puts the auto workers in the unenviable position of depending, if not on the kindness of strangers, then on the impartiality of the most partisan president of modern times. Republicans complain that labor costs at the Big Three are out of line with those at the non-union transplant factories in the South, factories that Southern governors have subsidized with billions of taxpayer dollars. But the UAW has already agreed to concessions bringing its members' wages to near-Southern levels, and labor costs already comprise less than 10 percent of the cost of a new car. (On Wall Street, employee compensation at the seven largest financial firms in 2007 constituted 60 percent of the firms' expenses, yet reducing overall employee compensation wasn't an issue in the financial bailout.) In a narrow sense, what the Republicans are proposing would gut the benefits of roughly a million retirees. In a broad sense, they want to destroy the institution that did more than any other to raise American living standards, and they want to do it by using the power of government to lower American living standards—in the middle of the most severe recession since the 1930s. The auto workers deserve better, and so does the nation they did so much to build. Labels: auto industry, Big Three, living standards, middle class, pensions, UAW Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Protests in Greece Have an Economic BasisWho would know, from much of the media coverage, that the protests that have been happening in Greece have to do with economics? Luckily Amy Goodman of Democracy Now! is on the story, to let us know that there has been a general strike over pension reform and privatization. Here's the introduction to the segment aired on Thursday:Listen to the segment. Labels: Amy Goodman, Democracy Now, general strike, Greece, pensions, privatization, protest Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Now Wall Street Wants Your Pension, TooJPMorganChase, Citi, Cerberus, and Morgan Stanley are among the firms lobbying Washington to let them take over and run corporate pension funds.[Hat-tip to Ira Glazer on lbo-talk for alerting us to this article.] by Matthew Goldstein | BusinessWeek | August 8, 2008 The folks who brought you the mortgage mess and the ensuing hedge fund blowups, busted buyouts, and credit market gridlock have another bold idea: buying up and running troubled corporate pension plans. And despite the subprime fiasco, some regulators may soon embrace Wall Street's latest scheme. The Treasury Dept. on Aug. 6 offered a blueprint for lawmakers on Capitol Hill to allow "financially strong entities in well-regulated sectors" to acquire pension plans , after the IRS ruled that the concept needed legislative approval. "The Administration's proposal says these deals should only be permitted when the acquiring entity has a higher credit-rating than the seller," says Charles Millard, director of the Pension Benefit Guaranty Corp. (PBGC), the federal insurer of last resort of corporate pension plans. "Such a transaction creates greater security for retirees and the pension system." The issue will now, no doubt, move to Congress after the election. In preparation for that moment, the world's biggest big investment banks, insurers, hedge funds, and private equity shops have been quietly laying the groundwork for such deals over the past year. They would be a big prize for Wall Street. The $2.3 trillion pension honey pot has $500 billion in "frozen plans" that are closed to new employees and whose benefits are capped, including those at IBM IBM, Hewlett Packard (HPQ), Verizon (VZ), and Alcoa (AA). And that figure could triple by 2012, according to consulting firm McKinsey. By managing those troubled plans, Wall Street also gains entrée to an appealing set of customers to whom it can sell a broad array of fee-generating products. "We have identified several clients who would be willing to be first to sell a plan," says Scott Macey, a senior vice-president at Aon Consulting. "But the question is, when is a good time for this?" The concept of off-loading pension funds sounds great. For businesses it's a chance to rid themselves of struggling plans, which can weigh down a balance sheet. It's especially good timing now. New accounting rules take effect in the next year or so that will require companies to mark their pension assets to prevailing market prices each quarter—a change that could devastate some companies' profits. Meanwhile, many companies no longer want to pay for pensions, troubled or otherwise. A recent report from the U.S. Government Accountability Office found that most companies freeze their pension plans merely to avoid "the impact of annual contributions to their cash flows." But the gambit to turn pensions into for-profit enterprises raises troubling questions. Critics, including some on Capitol Hill, worry that financial firms don't have workers' best interest at heart, which would put some 44 million current and future retirees at risk. "We think it's just a terrible idea," says Karen Friedman, policy director for advocacy group Pensions Rights Center. "In the wake of the subprime crisis, it would be crazy to allow financial institutions to manage these plans." Read the rest of the article. Labels: pensions, subprime crisis, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Companies Tap Pension Plans To Fund Executive BenefitsExcellent reporting on the front page of today's WSJ:Companies Tap Pension Plans To Fund Executive Benefits Read the rest of the article. Labels: executive pay, pensions, Wall Street Journal Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Dull Compulsion of the Economic (#11)A series of blog entries by D&S collective member Larry Peterson.With all the turmoil on the markets over the past week, a bit of attention has been diverted from the labor unrest taking place in France. Last Thursday, transport, electricity and gas unions led a one-day strike against the new Sarkozy government's attempts to pare back so-called "special regimes" for public sector pensions. These arrangements allow workers in these sectors to retire at a much lower age than is the norm in the private sphere, as well as other privileges not generally available to other workers. Though the response of other unions was enthusiastic (teachers and others joined in, and the electricity workers actually switched off the power going to Sarkozy's own private residence), many commentators were quick to discourage any comparison to the mass strikes of 1996, which toppled the government at the time. Today's strikes, crowed The Economist ("Sarkozy's Bad Week," October 20th), are "not justified " according to a poll in Le Figaro. The same poll reported 59% as saying that the unions were defending their special interests, not protecting social benefits in general. The public has thus shifted against the strikers, and now sees the pension perks as unfair. Such a switch should give Mr. Sarkozy the popular support he needs to stick to his guns." But there may be more here than just "the last gasp of a union movement that faces a changed political outlook in France" (The Economist again). The Financial Times, in its coverage of the strike ("French Strikers Test Sarkozy," October 18th), quoted a teacher marching in Paris who said that Sarkozy was "trying to pit private sector workers who do not have special pension privileges against those who do. Even if this does not directly concern us, we have to show our solidarity. If not, the government will just keep increasing the number of years we have to work." Her remarks, noted the FT, amplified those of union leader Bernard Thibault, who expressed the belief that workers throughout the economy were being made the scapegoats for the France's economic troubles. This is a sentiment that has been growing in France. As I wrote during the strikes of March, 2006, workers in France are becoming "resistant to gamble away any security they still enjoy every time the bosses and politicians can point to a nonperforming economic indicator." And though I have been critical of U.S. unions' tunnel vision in their quest to secure their retirees' benefits (ceasing to call for the same benefits and pay for new workers, so as to ensure older ones and retirees are paid off, etc.)—benefits that were, after all, were promised by employers themselves—it is equally important not to let governments and employers divide the labor movement with talk of exclusion and privileges. And a timely article in the Guardian tells us why. In his piece "The Slow Death of the Real Job is Pulling Us Apart" (The Guardian, October 19th), columnist John Harris shows that in Britain—so often considered a model for France regarding labor market reforms—the issue is not whether or not a privileged group of workers is sapping the energy of the economy by wasting its resources and denying others both opportunity and security; instead, all workers are feeling downward pressure on their living standards as protections are eroded. He says: "a few months ago I spoke to a manufacturing employee from the West Midlands who works in a factory producing car parts. Three years ago, the bosses began the recruitment of a new kind of worker. A dwindling number of long-standing staff were on 11 [pounds] an hour; the new arrivals—many of whom barely knew what they were doing—worked 12 hour days for 4 [pounds] an hour less, had none of the usual entitlements to paid holidays or sick leave, and were seemingly arriving and leaving through a revolving door. Within 18 months, for every "core" worker, there were two supplied by the agencies, many of whom were from Poland, Cameroon or Senegal. The walls were quickly smattered with racist graffiti and the level of scrap increased fast. Under union pressure, the company relented and proposed a scheme whereby long-standing agency workers could eventually join the accredited workforce, and, in its wake, the rancorous atmosphere began to improve." But one settlement does not mean the overall trend is any rosier. Accordingly, Harris goes on: "these people were lucky. Trade unionists cite no end of altogether bleaker case studies: three-tier workplaces in which indigenous British employees sit precariously at the top, flimsily employed Poles come further down, and thoroughly casualized Hungarians and Slovakians are left fighting at the bottom...On the stories go: meat-processing workers in Monmouthshire threatened with redundancy unless they downgraded to agency terms, and then fired." But it is a comment that Harris makes before embarking on this pitiful recital that I think is useful to cite in opposition to the Sarkozys and all the others who attempt to pit workers at each others throats (for increasingly paltry spoils). For, as the British workforce is in fact being segmented—not so much by any privileges that might accrue to them as mere protection from blatant, and often-times illegal exploitation on account of their status as full citizens (protection which is itself eroded as wage pressure continues to be brought on them by the growing employment of those with less protection, thereby lessening native workers' wage-bargaining position, and, eventually, even employability) with more access to the law courts, media or publicity, what are the politicians talking about? Harris provides a withering answer: the political class is "blithely yakking about 'rising expectations,' while millions of people's hopes are plummeting at speed." Now this is truly an example of division and special interests workers should pay attention to. Labels: France, pensions, Sarkozy, unions Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
