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Pension Plans In Corporate Cross-Hairs
R ecently United Airlines announced it will abandon the pension plans for its 120,000 employees and retirees, quickly setting off similar announced intentions by other airline companies and sharply increasing the likelihood of a chain reaction of pension plan failures, both within the airline industry and throughout other industries as well.
United Airline’s action directly followed a decision by Congress earlier this summer not to provide another loan to the company at the public taxpayers’ expense. It dramatically raises the possibility that the Pension Benefit Guarantee Corporation (PBGC), a non-governmental agency responsible for insuring workers’ pensions in such cases, will itself be forced into bankruptcy should it have to assume the nearly $7.5 billion liability of United’s (plus additional $10-$20 billion of other airlines’) unfunded pension obligations.
a consequence of the recent Bush administration’s decision
this year to allow companies with unfunded pension plans to forego
$80 billion in payments currently due and required by law to bring
their plans into balance, the PBGC now faces total unfunded pension
liabilities or more than $278 billion. Should the PBGC itself
fail under the imminent, large scale abandonment of group pension
plans by United and other U.S. corporations soon to follow its lead,
it will certainly require hundreds of billions of dollars in bailout
by Congress and mean yet another huge windfall for corporations
at the expense of the U.S. worker and taxpayer.
The 401K Plan Rip-Off
T here are basically four kinds of pensions in the U.S—the public Social Security system; Defined Benefit and Defined Contribution pension plans; and Individualized Savings accounts where employees pay into a 401K, an IRA, or a similar personal pension plan. Social Security and Defined Benefit pensions provide a guaranteed level of benefits on retirement, while Defined Contribution and Individual Sav ings account plans do not.
Corporations and financial institutions prefer 401Ks, IRAs, and similar individualized plans because they can charge high fees and raise administrative costs, lower the benefit amount at will, borrow from the accounts when they want, pressure workers to buy the company’s stock, manipulate the plan’s funds to make the company appear more profitable than it is, and let workers assume all the risks if the company or stock and bond markets fall. With union-defined benefit plans and Social Security they can’t do any of that.
Administrative fees for managing a 401K alone can amount to a huge sum and significantly impact a worker’s retirement. For example, the typical fee to run a 401K averages 2 to 4 percent of the worker’s contribution. If a worker had $100,000 in a 401K, earning 8 percent over 30 years, every 1 percent reduction in the 2 to 4 percent fee charge would mean an extra $215,000 in the worker’s account upon retirement.
Employees at Enron Corporation, who lost more than $2 billion when that company went bankrupt in 2002, were in a typical 401K account. Enron management pulled its money out when they knew the company was going under, while they “froze” the accounts for their employees who couldn’t withdraw anything until the plan was essentially bankrupt. But it’s not just Enron workers who have been victims of 401K plans. Between 2000 and 2002, during the recent Bush recession, workers who had their money in 401K plans found their retirement savings contract on average by 20 to 40 percent in 2 years.
Individual retirement plans based on 401Ks and similar programs are largely the product of the last 20 years. A series of laws were passed under Reagan in 1980, 1982, and 1987 that gave a big boost to 401Ks. At the same time, a corporate offensive was launched to dismantle Defined Benefit pension plans.
The result of this decades-long attack on group pensions, and the concurrent promotion of 401Ks, has been a major shift from union and group pension plans to individual retirement 401K accounts. Very few households had 401K retirement plans in 1983. By 1995, this had risen to 23 percent. Today more than 62 percent have such plans despite the various problems associated with 401Ks noted above. In contrast, in 1981 more than 37 percent of all U.S. workers were covered under some kind of group pension plan. Today the number is less than 20 percent.
Group Pension Plans
G eorge Bush, Alan Greenspan (head of the U.S. Federal Reserve System), and other conservatives have recently declared that privatizing and breaking up Social Security will be high on the Bush agenda in a second term. Social Security alone will generate $1.1 trillion in surplus between now and 2018. That is a huge sum of money that Wall Street, the banks, and corporations want transferred into 401K plans in order to invest offshore, to stimulate stock market sales, and for other business ventures.
But the target is not just Social Security. Group pension plans—especially union negotiated Defined Benefit plans with total funds of $350 billion on hand—are also in the Bush-corporate sights.
From Reagan through Bush, corporations have been terminating and undermining group pension plans by shutting down plants and moving companies, underfunding the plans, diverting funds to other corporate use when they can get away with it, and then, when the plan is in jeopardy, with the assistance of government and the courts, funneling whatever remains into private 401K-type personal savings plans.
From the passage of the Employee Retirement Income Security Act (ERISA) in 1974 until 2003, more than 160,000 Defined Benefit plans have gone under in the U.S.
Sixty-five thousand of these plans failed between 1975 and 1985, most of which occurred under Reagan from 1981-85 as a consequence of runaway shops, corporate restructuring, and the rust- belting of the U.S. From 1986 to 2002, another additional 95,000 plans failed, as traditional unionized and manufacturing jobs continued to melt away due to corporate outsourcing and off-shoring, government “free trade” policies, and as corporations in newer services and technology industries increasingly opted for 401Ks. Courts and legislatures throughout the 1990s made 401Ks more attractive with tax breaks and other advantages—as they simultaneously continued to tighten the screws on traditional group pension plans.
According to the government’s Pension Benefit Guarantee Corporation, there were 112,000 Defined Benefit pension plans in 1983. Today there are less than 31,000 such plans.
Group Pension Plan Crisis
P BGC is a federal government agency set up to handle the distribution of remaining pension funds and benefits when a plan gets into financial difficulty. Today the PBGC provides support to workers for only 3,200 pension plans out of the 160,000 such plans that went belly up since 1980. Most of the U.S. workers once covered by these 160,000 plans were forced to cash out, receiving only a small part of what they contributed to the plan, or were required to migrate to 401K or other plans with far fewer benefits.
Yet the current crisis in group pension plans is far from over. Both the 3,200 pension plans and the one million workers in those plans currently receiving insured pension benefits from the PBGC, as well as the 44 million additional workers and retirees in the remaining 31,000 Defined Benefit plans, are increasingly at risk. Today, pension benefits worth $1.5 trillion are exposed because the PBGC is about to go broke.
The corporate-government strategy of the last 20 years has succeeded in eliminating so many Defined Benefit plans that too few may exist today to keep the PBGC afloat. The PBGC is not backed by the “full faith and credit of the US government” and receives no federal tax dollars. The 31,000 pension plans still participating in the PBGC have to pay a fee to the fund that insures pension payments to workers in the plans it supports and to other plans that may also soon go broke. As the number of plans participating in the PBGC shrinks, the costs get higher for those pension plans remaining. They can opt out of the PBGC and increasingly have. In 1980 nearly 80 percent of all Defined Benefit pension plans participated in the PBGC. By 2000, only 53 percent participated and many more have dropped out since the recession.
As participation in the PBGC evaporates, at some point a critical threshold will be reached and the PBGC will be insolvent. By 2004, the PBGC fund’s deficit was more than $10 billion and rising at a rate of more than $1.5 billion each month.
But this is just a ripple. A pension storm is taking shape at sea and currently heading toward the retirement coastline. In an emergency report issued this past June 2004, the PBGC estimated that companies with pensions plans underfunded by $50 million or more—that’s more than 1,050 pension plans—together had an under- funded liability of $278.6 billion at the end of 2003. This compares to only $18.4 billion as recently as 1999. It doesn’t even include companies with underfunded liabilities of less than $50 million. The total underfunding for all pensions covered by the PBGC today comes to about $400 billion as of the end of 2003.
The Bush response to this growing crisis has been to give corporations with pensions in trouble a “contribution holiday,” by allowing them this past April to change the way they calculate their fund obligations for the next two years. This Bush “paper fix” will save these corporations $80 billion that they would otherwise have put into their pension plans—in other words, an effective additional corporate tax cut of $80 billion. But the $80 billion corporate contribution holiday will not resolve the real problem of underfunding.
F or Social Security, the Bush plan is to talk up a phony crisis and make workers believe that the Social Security fund doesn’t have enough money to pay for future retirees’ benefits by the end of the next decade. That propaganda campaign is already underway. Should Bush get elected for a second term, the next step will be to pass legislation early in 2005 allowing workers to invest their payroll tax deductions, now going into the Social Security fund, into private personal savings accounts like 401Ks, IRAs, and other similar devices—all of which will be controlled by corporations and banks. The same legislation will then provide a carrot and stick. The carrot will be to offer workers tax credits for the payroll deductions they transfer to privately run 401K plans. The stick will be to raise retirement levels and lower Social Security benefits (because there now will be less money in the Social Security fund). Making it longer to wait to retire and reducing benefits will create a strong incentive for workers to consider diverting their payroll tax deductions from Social Security into the tax credit-enabled 401Ks.
In contrast to Social Security, a real crisis does exist for group pension plans. Bush’s plan will be similar to that for Social Security. First, the current crisis in Defined Benefit pension plans will be allowed to worsen. Indeed, the Bush administration has been passing rules the past two years that won’t resolve the crisis, but are designed to make it worse. For example, another recent Bush rule prohibits unions from negotiating changes to their plans if they are in financial trouble. Finally, there are the new arbitrary rules concerning Cash Balance plans.
Cash Balance plans were recently launched by the largest corporations with Defined Benefit plans. Think of Cash Balance plans as a unilateral attempt by corporations to do an end-run on union negotiated Defined Benefit plans and convert them into Defined Contribution plans. More than 40 of the largest 100 corporations with Defined Benefit plans have gone this route in recent years. Cash Balance plans essentially permit workers (and managers) to cash out their benefits before retirement (at a total amount almost always less than what they would have earned in retirement). Once they cash out they can invest in 401Ks offered by the companies. Cashing out weakens financially the Defined Benefit plan and puts those who don’t cash out at growing risk. This provides an incentive for those initially reluctant to cash out, to do so. The result is a snowball effect that hastens the demise of the original Defined Benefit plan, which was intended by management from the outset.
Recent rules passed by the Treasury Department have been designed to encourage Cash Balance plans and thus the shift to 401Ks and the weakening of remaining union negotiated Defined Benefit plans. The battle over Cash Balance plans currently rages in Congress. Cash Balance arrangements will therefore loom large in Bush’s eventual restructuring of the U.S. retirement system in a second term.
The common denominator result of all the above, if allowed to continue, will soon be an even larger record number of Defined Benefit plans becoming financially unstable and having to be taken over by the PBGC. As PBGC losses accumulate, and the exodus from the PBGC of stable plans grows, it will become clear that the PBGC cannot survive without a massive government bail out. When this point is reached, the Bush administration will recommend legislation similar to that planned for Social Security—legislation that will allow, or even require, companies and workers in Defined Benefit plans to transfer their contributions and/or their remaining accrued funds into 401K and similar individual retirement accounts.
Republicans and conservatives in Washington are intent on using the crisis to provide more handouts and subsidies for their corporate friends at the expense of the public purse and the taxes we pay. They will attempt to use the crisis as an excuse for a complete restructuring of the pension system in the U.S.
Jack Rasmus is a member of the National Writers Union. This article is an excerpt from The War At Home: The Corporate Offensive in America From Reagan to Bush (www.kyklospro ductions.com).
Z Magazine Archive
AnnouncementsLABOR - May 1 is May Day. Workers of the world will celebrate the 124th anniversary of International Worker’s Day. Born out of a call for an 8-hour workday in the United States, this day is an opportunity for all workers to show their solidarity with one another, as well as to renew the call for labor rights.
FARM CONFERENCE - The Farm Conference on Community and Sustainability will be held May 24-26 in Summertown, TN, in partnership with the Fellowship of Intentional Communities. Tour green homes, see sustainable food production, learn about solar installations, alternative education, midwifery, and more.
Contact: Douglas@thefarmcommunity.com; http://www.thefarmcommunity.com/.
PALESTINE - The Conference of the Palestinian Shatat in North American will be held June 3-5 in Vancouver. The conference will examine the future of the Palestinian liberation movement.
Contact: firstname.lastname@example.org; http://www.palestinianconference.org/.
LABOR - The Pacific Northwest Labor History Association’s 45th annual conference will be held May 3-5, in Portland, OR. This year’s theme is Labor Under Attack: Learning from the Past and Preparing for the Future. A call for presentations, workshops and papers is currently underway.
Contact: PNLHA, 27920 68th Ave. East, Graham, WA 98338; 206-406-2604; PNLHA1@aol.com; http://www3.telus.net.
MARIJUANA - On the first Saturday of May marijuana legalization activists will hold informational and educational events, rallies and marches in over 300 cities around the world.
ECONOMICS - The Union For Radical Political Economics will hold its 39th annual conference May 9-11 in New York City.
RECLAIM THE DREAM - The 2013 Poor People’s Campaign & March from Baltimore to Washington D.C. will be May 11. Communities, schools and unions interested in participating are encouraged to contact the Baltimore People’s Assembly.
Contact: 410-500-2168; 410-218-4835; BaltimorePeoplesAssembly@gmail.com; Southern Christian Leadership Conference of Baltimore and the Baltimore Peoples Power Assembly, 2011 N. Charles St., Baltimore, MD 21218.
MOTHER’S DAY - The 17th Annual Mother’s Day Walk For Peace will be May 12th, in Dorchester, MA. The walk began in 1996 for families who had lost children to violence. The day has become a way for thousands of people to financially support the work of the Louis Brown Peace Institute.
Contact: http://www.ldbpeaceinstitute.org/; http://mothersdaywalk4peace.org/.
NATO 5 - An International Week of Solidarity with the NATO 5 has been called for May 16-21. Supports call on supporters to raise awareness of the NATO 5 and support funds for the defendants on the one-year anniversary of their preemptive arrests.
Contact: email@example.com; https://nato5support.wordpress.com.
MOUNTAINTOP - The 2013 Mountain Justice Summer Activist Training Camp will be held May 19-27 in Damascus, VA. It will be a week of workshops, field trips to view Mountain Top Removal coal mines, direct actions, and service project.
FEMINIST SCI-FI - The feminist science fiction convention WisCon 37 is scheduled for May 24-27 in Madison, WI.
Contact: WisCon, ? SF3, PO Box 1624, Madison, WI 53701; firstname.lastname@example.org; http://www.wiscon.info/.
ANARCHY FEST - A month-long Festival of Anarchy is scheduled for May in Montreal. The festival includes The Montreal Anarchist Bookfair (May 19-20).
Contact: http://www.anarchistbookfair.ca/; http://www.radicalmontreal.com/.
LABOR - The International Labor Rights Forum will present: Down the Supply Chain, Driving Corporate Accountability, on May 22 in Washington, DC. The Labor Rights Awards Ceremony and Reception will honor pioneers in supply chain worker organizing, working solidarity and international labor rights policy.
MULTICULTURE - The 26th annual National Conference on Race & Ethnicity in American Higher Education (NCORE) will take place May 28-June 1, in New Orleans.
Contact: SWCHRS, 3200 Marshall Avenue, Suite 290, Norman, OK 73072; 405-325-3694; email@example.com; www.ncore.ou.edu.
MEDIA - The 2013 Alliance for Community Media Annual Conference will be held May 29-31, in San Francisco, CA. Participants will include educators, community leaders, media professionals, journalists, nonprofit leaders, policymakers and students.
RADIO - The 38th Annual Community Radio Conference is schedule for May 29-June 1, in San Francisco, CA, with discussions and workshops.
Contact: 1101 Pennsylvania Ave. NW, Suite 600, Washington, DC 20004; 202-756-2268; firstname.lastname@example.org; http://www.nfcb.org/.
BRADLEY MANNING - On June 1, a rally will be held at Fort Meade in support of Bradley Manning.
BIKES - Bikes Not Bombs is holding its 24th annual Bike-A-Thon and Green Roots Festival in Boston, MA on June 3, with several bike rides scheduled, music, exhibitors and more.
Contact: Bikes Not Bombs, 284 Amory St., Jamaica Plain, MA 02130; 617-522-0222; email@example.com; www.bikesnotbombs.org.
LEFT FORUM - The 2013 Left Forum will be held June 7-9, at Pace University in New York City.
Contact: 365 Fifth Avenue, CUNY Graduated Center, ? Sociology Dept., New York, NY 10016; http://www.leftforum.org/.
VEGAN FEST - Mad City Vegan Fest will be held in Madison, WI, June 8. The annual event features food, speakers, and exhibitors.
Contact: 122 State Street, Suite 405 B, Madison, WI 53701; firstname.lastname@example.org; http://veganfest.org/.
ADC CONFERENCE - The American-Arab Anti-Discrimination Committee (ADC) holds its annual conference June 13-16, in Washington, DC, with panel discussions and workshops on civil rights, media and other topics.
Contact: 1990 M Street, Suite 610, Washington, DC, 20036; 202-244-2990; email@example.com http://convention.adc.org/.
CUBA/SOCIALISM - A Cuban-North American Dialog on Socialist Renewal and Global Capitalist Crisis will be held in Havana, Cuba, June 16-30. There will be a 5 day Seminar at University of Havana, plus visits to a cooperative, urban garden, community development project, social research centers, and educational & medical institutions.
Contact: firstname.lastname@example.org; http://www.globaljusticecenter.org/.
NETROOTS - The 8th Annual Netroots Nation conference will take place June 20-23 in San Jose, CA. The event features panels, trainings, networking, screenings, and keynotes.
Contact: 164 Robles Way, #276, Vallejo, CA 94591; email@example.com; http://www.netrootsnation.org/.
MEDIA - The 15th annual Allied Media Conference will be held June 20-23, in Detroit.
Contact: 4126 Third Street, Detroit, MI 48201; http://alliedmedia.org/.
GRASSROOTS - The United We Stand Festival will be hosted by Free & Equal, June 22 in Little Rock, Arkansas. The festival aims to reform the electoral process throughout the U.S.
SOCIALISM - The Socialism 2013 Conference is scheduled for June 27-30 in Chicago, featuring talks and panel discussions.
Contact: firstname.lastname@example.org; http://www.socialismconference.org.
LITERACY - The National Association for Media Literacy Education (NAMLE) will hold its conference July 12-13 in Los Angeles under the heading, Intersections: Teaching and Learning Across Media.
Contact: 10 Laurel Hill Drive, Cherry Hill, NJ 08003; http://namle.net/conference/.
IWW - The North American Work People’s College will take place July 12-16 at Mesaba Co-op Park in northern Minnesota. The event will bring together Wobblies from branches across the continent to learn new skills and build One Big Union.
PEACESTOCK - On July 13th, the 11th Annual Peacestock: A Gathering for Peace, will take place at Windbeam Farm in Hager City, WI. The event is a mixture of music, speakers and community for peace. Sponsored by Veterans for Peace.
Contact: Bill Habedank, 1913 Grandview Ave., Red Wing, MN 55066; 651-388-7733; email@example.com; http://www.peacestockvfp.org.
CHILDREN’S DEFENSE - July 15-19, join clergy, seminarians, Christian educators, young adult leaders and other faith-based advocates for children at CDF Haley Farm in Clinton, Tennessee, for five days of spiritual renewal, networking, movement building workshops, and continuing education about the urgent needs of children at the 19th annual Proctor Institute for Child Advocacy Ministry.
Contact: firstname.lastname@example.org; http://www.childrensdefense.org.
ACTIVIST CAMP - Youth Empowered Action (YEA) Camp will have sessions in July and August in Ben Lomond, CA; Portland, OR; Charlton, MA. YEA Camp is designed for activists 12-17 years old who want to make a difference in the world.
Contact: email@example.com; http://yeacamp.org/.
LA RAZA - The annual National Council of La Raza (NCLR) Conference is scheduled for July 18-19 in New Orleans, with workshops, presentations and panel discussions.
Contact: NCLR Headquarters Office, Raul Yzaguirre Building, 1126 16th Street, NW, Washington, DC 20036; 202-785-1670; www.nclr.org.
LABOR - The Eastern Conference For Workplace Democracy: Growing Our Cooperatives, Growing Our Communities, will be held at Drexel University in Philadelphia, PA, July 26-28.
Contact: firstname.lastname@example.org; http://east.usworker.coop/.
WOMEN/LYNNE STEWART- Radical Women is asking for support letters and cards to be sent to Lynne Stewart. Stewart is a civil rights attorney and political prisoner who is currently in jail. She has breast cancer and authorities have denied her request for transfer from her Texas prison to the New York City hospital where she received medical attention during a prior bout of breast cancer. Send messages and cards to: Lynne Stewart 53504-054, Federal Medical Center Carswell, P.O. Box 27137, Fort Worth, TX 76127.
Contact: 747 Polk Street, San Francisco, CA 94109; 415-864-1278; RadicalWomenUS@gmail.com; http://lynnestewart.org/; http://www.radicalwomen.org/.
HAITI/WOMEN - Haiti’s government is considering a legal reform measure that would prohibit and punish all sexual assault, including marital rape. MADRE and the International Campaign to Stop Rape & Gender Violence in Conflict are launching a petition to raise international support for this push to address violence against women in Haiti.
Contact: 121 West 27th Street, #301, New York, NY 10001; 212-627-0444; email@example.com; http://www.madre.org.
SYRIA/MIDDLE EAST - The Middle East Children’s Alliance (MECA) is currently seeking funds to assist more than 200,000 refugees fleeing violence in Syria.
FOLK FESTIVAL - The Falcon Ridge Folk Festival will be held August 2-4, in the Berkshires, NY.
Contact: http://www.falconridgefolk.com/; firstname.lastname@example.org.
WAR RESISTERS - The War Resisters League will hold its 90th anniversary conference, Revolutionary Nonviolence: Building Bridges Across Generations and Communities, August 1-4, at Georgetown University. The event will focus on the U.S.’ long history of antimilitarism.
Contact: 339 Lafayette Street, New York, NY 10012; 212-228-0450; email@example.com; http://www.warresisters.org.
POPULAR ECONOMICS - The Center for Popular Economics is holding its 2013 Summer Institute August 4-9 at Hampshire College in Amherst, MA. No background in economics is needed for this intensive training. This year’s theme is, The Care Economy: Building a Just Economy with a Heart.
Contact: Center for Popular Economics, PO Box 785 Amherst, MA 01004; 413-545-0743; firstname.lastname@example.org; www.populareconomics.org.
VETERANS - Veterans for Peace is holding the 28th annual convention August 6-11 in Madison, WI. This year’s theme is, Power To The Peaceful.
DEMOCRACY - The Democracy Convention will take place August 7-11 in Madison, WI. The convention brings together nine conferences including topics such as media, education, defense, race, environment and others.
MEN - The 38th National Conference on Men & Masculinity: Forging Justice: Creating Safe, Equal and Accountable Communities, presented in partnership with HAVEN, will be held in Detroit, MI, August 8-10.
Contact: email@example.com; http://www.nomas.org/.
OCCUPY - An Occupy National Gathering will be held in Kalamazoo, MI, August 21-25.
Contact: firstname.lastname@example.org; http://occupynationalgathering.net/.
COMMUNITIES - The Communities Conference is a networking and learning opportunity for co-operative or communal lifestyles, with workshops, events and entertainment; scheduled for August 30-September 2 at the Twin Oaks Community in Louisa, Virginia.
LABOR DAY - The 29th annual Bread and Roses Festival, a celebration of the ethnic diversity and labor history of Lawrence, MA, will be held September 2, in honor of the 1912 Bread and Roses Strike. There will be music, dance, poetry, drama, ethnic food, historical demonstrations, walking & trolley tours.
Contact: PO Box 1137, Lawrence, MA 01842; 978-794-1655; http://www.breadandrosesheritage.org/.
OCCUPY WALL STREET - September 17 is the two-year anniversary of the Occupy Wall Street movement. Events are planned in New York City and worldwide.
TEACHERS - The 13th Annual Conference, “Teaching for Social Justice: The Politics of Pedagogy,” will be held October 12 in San Francisco, CA. The free event features workshops, resources, and free childcare.
Contact: 415-676-7844; email@example.com; http://www.t4sj.org/.
HAITI - International Action, which brings clean water and chlorinators to Haiti, seeks office space capable of housing up to six people and their office equipment.
Contact: Zach Bremer, Zbrehmer@haitiwater.org; 202-488-0735; http://www.haitiwater.org/.
MEDIA - The Union for Democratic Communications and Project Censored are sponsoring a joint conference on media democracy, media activism and social justice to be held November 1-3 at the University of San Francisco. Proposals for presentations, workshops and panels from activists and critical scholars are invited.