Grand theft pension “reform”

January 9, 2014

Gutting pensions is part of a massive transfer of wealth from the bottom to the top.

"PEOPLE ARE feeling like they're just violated--like someone stole their money for retirement."

So said JoAnn Washington-Murry, a 60-year-old child welfare specialist who has worked for the Illinois Department of Children and Family Services for almost 20 years. She saw her whole future thrown into question--by pension "reform."

Weeks before the Christmas holiday last month, Democratic Gov. Pat Quinn turned his back on union supporters who got him elected and signed one of the most comprehensive pieces of pension "reform" legislation in the country.

Or more accurately, pension deform. Based on projected retirement benefits for state workers with 25 years of service under the deformed system, Washington-Murry will receive $30,000 less over the next 18 years than she would have under the old plan.

Washington-Murry told an Associated Press reporter that she had planned for her retirement under the current pension system "It's just really scary right now to think about how we're going to do this," she said. "We might need to start looking now for another home, or I can keep working until the mortgage is paid."

AFSCME workers in Illinois rally to defend their pensions
AFSCME workers in Illinois rally to defend their pensions

Illinois--dominated by the Democrats, and despite a clause in its constitution stating that pension benefits "shall not be diminished or impaired"--may be leading the way, but it isn't alone.

The anxieties JoAnn Washington-Murry is experiencing are being repeated again and again, in states and cities across the country. Everywhere--whether it's Republicans in charge, blaming "overpaid" public employees or Democrats claiming we "all" need to sacrifice--the "pension crisis" has become the excuse to raise the retirement age, impose a cap on retirement benefits, reduce cost-of-living adjustments and increase employee contributions.

In Detroit, where the average annual pension payment to retired city workers is just $19,000, city officials cited $3.5 billion in unfunded pension costs as one of main reason for declaring bankruptcy. When Central Falls, R.I., declared bankruptcy in 2011, some city workers had their pension benefits slashed by more than half.


IRONICALLY, A solid pension was one reason why people may have chosen a government job with a lower salary than they could have gotten in the private sector--public employees could at least look forward to a more secure retirement.

Not anymore--now their futures are being stolen away before their eyes. More and more, governments at every level are asking employees to foot the bill for their own retirement, either requiring bigger individual contributions to pension plans or, often enough, shifting workers into 401(k) retirement plans.

This has been going on in the private sector for years, of course--shifting the responsibility for retirement savings from employer to employee, and the basis of those savings from defined-benefit pension plans with a fixed monthly retirement income to 401(k) plans, where the size of regular benefits and overall savings go up and down with the financial markets.

Pensions used to be the norm in jobs that paid a decent wage and provided good benefits.

When 401(k) plans--in which workers put a portion of their paycheck into an investment fund--emerged in the 1980s, they were viewed as a supplement to traditional pensions.

But today, 401(k) plans have overtaken traditional pensions--because it's a lot more profitable for private companies and "financially responsible" for governments to push the responsibility for retirement onto employees. Between 1990 and 2010, the percentage of private-sector employees with traditional pension plans dropped by half, from 42 percent to 22 percent.

Today, some 50 percent of private-sector workers rely on a 401(k) plan for retirement savings, according to the Economic Policy Institute (EPI). Some, though certainly not all, employers may contribute to the 401(k) plans of employees, but the employees take all the risk. There is no promise of the return on their retirement savings. It all depends on the fortunes of the financial markets--something most people know little about, and have even less control over.

Compounding the problem is the fact that working people have less and less money to devote to retirement savings. For the poorest 40 percent of U.S. workers, average household income has fallen by more than 10 percent since 2000, after accounting for inflation. If these workers had any money to put away for retirement beforehand, it's being eaten up by the decline in their paychecks that has only accelerated during the Great Recession.

Retirement savings reflect the widening gap between the rich and poor in the richest country on Earth. According to EPI figures from 2010, among households ranking in the top one-fifth in income, median savings in a retirement account was $160,000--compared to $8,000 to $36,000 for households on the lower four-fifths of the income ladder.

What's more, as the EPI points out: "These amounts are for households with savings in retirement accounts. The median for all households (including those with no savings) is close to zero since nearly half of households have no savings in these accounts."

The grim consequence is that many seniors discover they don't have enough saved to retire--and so they don't retire. Some 82 percent of people over the age of 50 say it's at least somewhat likely they will work for pay during their retirement years, according to an October poll by the Associated Press-NORC Center for Public Affairs Research.


THERE'S ANOTHER bitter dimension to the great pension robbery: Public-sector workers are being forced into market-based investment plans that leave them at the mercy of Wall Street--when it was Wall Street that made off with much of their "safe" retirement in the first place.

Following the financial meltdown five years ago and the multitrillion-dollar Wall Street bailout that followed, the era of government austerity kicked into high gear. The impact hit state and local governments hardest, including their retirement obligations. Not only were they starved of tax revenues to contribute to pensions, but their existing pension funds--heavily invested in the stock market and exposed to the mortgage-backed securities that detonated the 2008 financial crisis--suffered big losses.

As journalist Matt Taibbi wrote in a recent Rolling Stone article:

Today, the same Wall Street crowd that caused the crash is not merely rolling in money again, but aggressively counterattacking on the public-relations front. The battle increasingly centers around public funds like state and municipal pensions. This war isn't just about money. Crucially, in ways invisible to most Americans, it's also about blame. In state after state, politicians are...using scare tactics and lavishly funded PR campaigns to cast teachers, firefighters and cops--not bankers--as the budget-devouring boogeymen responsible for the mounting fiscal problems of America's states and cities.

And to top it off, many local and state governmental bodies were underfunding pensions for years before the crisis hit. Taibbi cites Chris Tobe, a former trustee of the Kentucky Retirement Systems, who found that over the last decade, 14 states regularly failed to make mandated contributions to state workers' pension funds.

Meanwhile, the money keeps rolling in for Wall Street, as public pension funds are invested. This will cost the state of Rhode Island, $2.1 billion in fees paid to hedge funds, private-equity funds and venture-capital funds over the course of 20 years, according to Taibbi.

"Why is that number interesting?" he asks. "Because it very nearly matches the savings the state will be taking from workers by freezing their cost-of-living adjustments [for pensions]--$2.3 billion over 20 years." As Stephen Day, retired president of the Providence, R.I., firefighters union, told Taibbi: "They pretty much took the COLA and gave it to a bunch of billionaires."

No wonder the propaganda campaign is so shrill--the bankers and the politicians who serve them want at all costs to deflect attention from this immensely profitable scam. Instead, government workers get blamed for the crisis--because of their supposedly generous retirement benefits.

A recent report by Institute for America's Future (IAF) showed how John Arnold and the Pew Charitable Trusts joined forces to blame state budget crises on public employees' pensions. If the name John Arnold sounds familiar, it may because he's a former executive at Enron--the energy company whose 2001 collapse killed its own employees' retirements, but also wrecked the retirement funds of public employees across the country.

Meanwhile, local and state governments shower corporations with tax breaks and subsidies that could end the "pension crisis" right now. As the IAF report points out:

[P]ublic pensions face a 30-year shortfall of $1.38 trillion, or $46 billion on an annual basis. This is dwarfed by the $80 billion a year states and cities spend on corporate subsidies. Yet conservatives cite the pension shortfall not as reason to reduce the corporate subsidies and raise public revenue, but instead as proof that retiree benefits need to be cut.

The assault on pensions isn't coming from Republicans or conservative think tanks alone. Barack Obama has repeatedly put federal workers' pensions on the list for cuts during budget negotiations in Washington. On the day after Christmas, while vacationing in Hawaii, Obama signed a federal budget compromise that, among other things, imposed new limits on pensions for military retirees.

The gutting of pensions is part of a massive shift in wealth from the bottom to the top of society. And it's a bipartisan campaign. So whether it's Paul Ryan or Patrick Quinn or Barack Obama calling for workers to sacrifice, we have to say no.

When aircraft maker Boeing threatened Washington state union workers with their jobs unless they conceded to pension "reform," rank-and-file workers tried to say no. In the end, Boeing's bullying--and union leaders' willingness to surrender without a fight--won the day, and Boeing workers narrowly passed a concessionary contract including pension cuts.

We have to strengthen those who are standing up to austerity and increase their numbers. We have a simple message: Workers have already paid enough for the crisis--it's time to start cutting from the top.

E-mail alerts

Further Reading

Latest Stories

From the archives