Our employers make their money by purchasing our ability to labor as cheaply as they can and compelling us to work as long and hard as possible, each day, every day. They are best able to do this when we are insecure, forced to take whatever the market offers. Whatever makes us secure imperils the ability of our bosses to get rich from our labor.
Through long, difficult struggle, in our workplaces and in the larger world of politics, we have managed through our unions to win a modicum of security—higher wages and benefits, the latter provided by both employers and the government. One of the most important benefits is pensions. Our value in the marketplace diminishes with age and disappears altogether for most of us when we reach our seventies. Without income when we are old, we will be hard-pressed to survive.
Unfortunately, pensions are everywhere under attack, by employers and politicians alike. We are all aware of the assaults on Social Security, sanctioned by every president from Reagan to Obama, and championed by employers and the wealthy, especially those in the finance sector, who lust after the hundreds of billions of dollars in the Social Security trust funds. With respect to workplace-based pensions, the attacks and the cast of characters are essentially the same, except that here the enemies of pension security for workers have won major victories.
Employer-based pensions in the private economy have been under the gun for a long time. The best evidence for this comes from Bureau of Labor Statistics research on defined-benefit pension plan (DB pensions) coverage. DB pensions are funded by employers and provide a guaranteed amount of income upon employee retirement, usually based upon seniority and pay level. They were pioneered by unions, whose one-time power compelled many nonunion employers to provide them too. Here are some facts:
- 35% of private sector workers were covered by DB plans in the early 1990s; today just 18% have such coverage. For those who still have some sort of pension, chances are it is a Defined Contribution (DC) plan, in which employees contribute, sometimes with an employer full or partial match, to an IRA-type fund, so that retirement income depends on both the amount contributed and the fund’s performance. These have proved a poor substitute for DB pensions. According to a study by the Federal Reserve, the median retirement account of those aged 55 to 64 was a mere $100,000, no more than a few years’ worth of income. Today’s generation of workers will be the first to have less retirement income security than that of their parents’ generation.
- Both union and nonunion workers in the private sector have suffered a significant decline in DB retirement coverage. However, union workers are still much more likely to have such coverage; today, 67% of unionized workers have it, while just 13% of nonunion employees do. However, union membership has been steadily declining, and this means that the overwhelming majority of workers are, in fact, nonunion, accounting for the statistic that just 18% of all private sector workers have DB pensions.
- The dire pension security situation in the private sector can be contrasted to that of public workers, where 78% are covered by DB plans, reflecting primarily the more than five times greater unionization rate of public as compared to private sector workers.
Nonunion private sector employees are not only unlikely to have pensions, but even if they do, employers are free to terminate their plans. These exist at the will of the owners. The federal government, through the Employee Retirement Income Security Act (ERISA), will in many cases ensure through federal funding that retirees and those working under a plan at the time of termination get at least part of the money due them.
With a union-negotiated DB plan in the private sector, it is harder for employers to reduce or end their pension obligations. But it is not impossible. The easiest way is to negotiate givebacks with the union. The threat of moving operations to another state or country often does the trick, as we learned in the recent Boeing fiasco. The national union negotiated an end to the DB pension plan for future bargaining unit members. A recent article in In These Times spelled out what the union conceded: “Perhaps most painfully, when the contract takes effect in 2016, workers’ current defined-benefit pensions will be frozen, and they will switch over to a defined-contribution plan supported by the company. All new employees will receive defined-contribution pensions starting in 2016.” When the local union rejected the agreement, the national union forced a new vote, and the workers, fearful that Boeing would close the plant and move it elsewhere, agreed by a small margin to, in effect, give the company everything it wanted.
A second way to shed pension obligations in the private sector is for the employer to declare bankruptcy. A bankruptcy judge can then allow the corporation to end its pensions, which might then be turned over to the federal government under ERISA. This is what has happened repeatedly to airline workers after the industry was deregulated in the 1980s. Airline pilots, for example, often found themselves with pensions a fraction of what they had a right, under their collective bargaining agreements, to expect. As with the giveback scenario at Boeing, the threat of bankruptcy might lead to pension concessions. And even without bankruptcy, bad investments by pension fund managers, which are all too common and typically unregulated, might cause a DB pension fund to become insolvent. Again, the federal government may be forced to pay for the corporations’ mistakes, and again workers will probably get less than what they deserved.
Given the decimation of private-sector unions, with union density at 6.7% in 2013, it is safe to say that the employer onslaught against labor has been successful. The future of pensions in the private sector is therefore bleak; barring mass working class mobilizations, things will not get better any time soon. Yet capital never rests, and it has now turned its attention to public employees, who enjoy a relatively high union density (35.3% in 2013), some job security, and decent benefits. Super-rich capitalists like the Koch brothers and Bill Gates have been spending large sums of money to finance think tanks, foundations, public-advocacy groups, and politicians who will attack public employees, arguing that their greed is responsible for the fiscal crises that afflict many state and local governments.
As those with a good understanding of public finance have repeatedly shown, this argument is false. First, the Great Recession that began in 2007, caused by these very same persons, led to massive tax shortfalls. Second, and compounding the falling tax revenues, governments across the country have repeatedly cut taxes on the wealthy and their businesses, spent lavishly to benefit both entities, and, in addition, paid unconscionably high fees to brokers and other middlemen who then invested public monies in risky financial instruments.
To add insult to injury, legislators often looted pension funds to pay for socially useless projects. Furthermore, public workers do not make exorbitant salaries, nor are their benefits extraordinary. Seventy percent of public employees get an annual pension of under $30,000. Yet, those with their gun sights set on public employees have enough money to propagandize effectively, even managing to convince some workers in the private sector that public workers should not get what they themselves have lost or never had in the first place.
Gutting public worker pensions has been made easier by the exclusion of public employees from coverage under ERISA. This means that their pension funds are not well-regulated and what laws exist are not adequately enforced. States routinely “borrow” money from such funds and invest pension monies in what can only be called financial scams, as when Rhode Island gave a $75 million loan guarantee for an ill-fated video-game venture run by former Red Sox pitcher Curt Schilling. If a pension fund goes belly-up because of such chicanery, there is no federal insurance available.
States can cut pension benefits or limit collective bargaining about them simply by enacting new legislation. This is what Rhode Island did in 2011 with its Rhode Island Retirement Security Act, which suspended cost-of-living adjustments, raised the retirement age for most state workers, cut DB pensions dramatically, and substituted in place of these cuts DC pensions. Last year, Michigan enacted a new pension law, which slashes future retirement benefits. One labor group estimated that a state worker retiring at age sixty after thirty years of service, will receive $107,062 dollars in benefits than he or she would have received before the new law was passed.
The budget woes of some local governments have led to their declaring bankruptcy. The most notorious of these is Detroit. The state took over the governance of the city, and the new executive powers have demanded major givebacks from the city’s union workforces, including pensions. The unions rejected these demands, but were stunned when the bankruptcy judge ruled that the state law protecting pensions from cuts or elimination was overridden by federal bankruptcy law. Pensions were the result of a contractual arrangement, he said, no different than any other contract and therefore subject to the arbitrary rule of the court.
How might workers and our unions respond to the attack on old-age security? Already there have been lawsuits, attempts to recall politicians from office, threats to refuse support for legislators labor had helped win past elections, rallies, and demonstrations. These must continue. However, more is needed: strikes, mass picketing, picketing of state capitals, mass mobilizations, sit-ins, support for independent labor/community candidacies — based on unions and progressive community organizations — and an absolute refusal to back Democratic officials, like Illinois governor Pat Quinn, who act as enemies of the working class. Rank-and-file movements exist in many national unions and we must support them. The efforts by a reform slate to rid the Machinists union of the leaders who sold members down the river at Boeing are important and must also be supported. Nationally, we must insist that AFL-CIO leaders begin to act in solidarity with all workers whose pensions are threatened. In every pension struggle, we must declare that pensions are deferred wages. We earned them, and it is both unjust and illegal to not pay what we are owed.
What is especially needed is a massive labor effort to not just reject cuts in Social Security but to demand a significant expansion of this well-run, efficient, and scandal-free institution. In the end, there is no way to win universal old-age security from employers. Private employers in a global economy have too much power to be bent to the will of workers over the long haul, though every effort must be made to do so. The federal government, on the other hand, is another matter. Here, in the political realm, is where power could and must be brought to bear. A rich, modern society that does not take care of its elderly is no society at all. It is time to say so—forcefully.