Corporate America's pension rip-off
By Lee Sustar | January 30, 2004 | Page 12
CALL IT the Pension Ripoff Act of 2004. If a bill that's expected to pass the U.S. Senate becomes law, airlines and steel companies would be able to cut payments that they owe to the federal government's Pension Benefits Guaranty Corporation (PBGC) by $16 billion over the next two years.
The proposed legislation includes a formula that would reduce the amount of cash that big employers like General Motors (GM) are required to invest to shore up their underfunded pension plans. Without this break, the companies say, they may terminate their pension plans and dump them on the PBGC, which insures pension plans covering 44 million people.
Overall, companies with traditional, or "defined-benefit," pension plans, are underfunded by a staggering $350 billion. During the boom years of the late 1990s, pensions at many big corporations were "overfunded"--meaning that the investments to cover pensions brought returns far beyond what was needed to cover retiree benefits. But companies like General Electric simply counted the extra cash from pension investments as income to look good to Wall Street--and refused to improve retirees' miserable benefit levels.
Since 2000, a stock market slump has wiped out billions in investments used to cover pensions, while interest rates fell on the U.S. government bonds used to calculate pension obligations. Low interest rates meant that the projected return on many pension investments dropped, forcing companies to set aside more assets for pensions in the short term to make up the difference.
As a result, GM, for example, had to sell $19 billion in bonds last year to cover its pension gap. Yet other companies are simply walking away from their pension obligations, often using bankruptcy to do so.
Corporate America's approach is sheer blackmail: Allow us to cut our payments to the PBGC today--or we'll make the crisis worse tomorrow by scrapping our pensions, period. "If business can be relieved of these pension obligations, the money is going to go straight into profits," Dean Baker, co-director of the Center for Economic and Policy Research, told Socialist Worker.
If this scheme appears to be another gift to Corporate America from George W. Bush, look again. The bipartisan Senate bill is fronted by liberal Sen. Ted Kennedy (D-Mass.)--and supported by other prominent Democrats like Senate Minority Leader Tom Daschle (D-S.D.) on behalf of corporate lobbyists.
The scale of the pension crisis has grown dramatically in recent years. In 2002 alone, some 152 pension plans were terminated, forcing the PBGC to take over benefits for 206,000 people, many of them retired steelworkers who also lost health care coverage.
The PBGC--which already has a $11.2 billion deficit--pays shockingly low benefits. Workers who had earned decent pensions, many of them negotiated by unions over the years, usually find their benefits cut in half by the PBGC. If employers are allowed to reduce their payments to the PBGC, it could either put those inadequate payments at risk, force a taxpayer bailout of the system, or both.
The rebound in the stock market and a rise in some long-term interest rates have eased the pension crisis. But employers are still determined to abandon their obligations to retirees. "Even though pension problems appear to be ebbing, companies continue efforts to reduce or kill pension programs," the Wall Street Journal noted in November.
For example, US Airways last year terminated its pilots' pension plan, claiming it was $2.5 billion in the red. Today, the company says the shortfall is just $900 million, which means that the PBGC would get fewer of the company's assets to pay out the pilots' reduced benefits. Now, officials at bankrupt United Airlines have indicated that if the company doesn't get to reduce payments under the new pension legislation, it could terminate its plan as well.
Even profitable companies are threatening to dump their pensions into the PBGC. David Stockman, the former White House budget director for the Reagan administration who is now an auto parts company CEO, has called on the PBGC to take over the auto industry's underfunded plans. Even Delphi Automotive Systems Corp., a GM spinoff with few retirees, wants to shift its payment to the PBGC.
You might expect the United Auto Workers (UAW) to be mobilizing against the likes of Stockman to defend workers' pensions. Yet the UAW supports reduced payments to the PBGC on the grounds that it will convince the companies not to terminate their plans.
"The UAW is trying to make this look like an orderly retreat, but it's really a rout," said Gregg Shotwell, an activist with UAW Local 2151 at the Delphi plant in Cooperstown, Mich. "The notion that if you retire, you will be safe, is a dangerous illusion."
The Teamsters union also went along with the corporate pension grab in November, when union trustees for a multi-employer pension fund voted with management to impose drastic benefits cuts in the Central States Pension Fund that covers 460,000 workers. Starting this year, payments per year will be reduced, early retirees will be penalized, and higher retiree health care premiums will eat up more of the benefits.
"The Central States fund just gained $2 billion in the financial markets," said Mark Serafinn, former president of Teamsters Local 722 in La Grange, Ill. "There is absolutely no reason for this pension reduction other than spineless Teamsters trustees." Meanwhile, United Parcel Service is pushing for legislation that would allow the company to pull out of such multi-employer pension plans--a demand that it was forced to drop during the Teamsters' 1997 strike.
Rank-and-file Teamsters are fighting back. Teamsters for a Democratic Union has helped to organize raucous protests at local union meetings in Louisville, Atlanta and elsewhere to demand that Teamster trustees take a stand to reverse the benefit cuts.
More action like this is needed. After decades of squeezing workers for profits, Corporate America is out to steal their retirement, too--and it's time to draw the line.