Tuesday, March 07, 2006

Cheney is Right

You better start saving your money.
The move to freeze pensions at solid, profitable companies like Verizon—and at others, including IBM, Sprint, Nextel, Tribune Corp., Lexmark, Alcoa and Russell Corp.—is the latest sign of pressure on traditional guaranteed pension plans. "It's an entirely new phenomenon for healthy companies to freeze their pensions," says Alicia Munnell, director of the Center for Retirement Research at Boston College.

In 2003, 41 percent of workers with pension coverage had defined benefit pensions, down from 83 percent in 1980, according to the latest data released in February by the center. For the last several years, employees in struggling industries such as airlines, steel, coal and textiles have watched as their firms declared bankruptcy and terminated their plans altogether. And more may be in trouble, particularly in industries such as auto parts.

Not only that, new regulatory and legislative changes now in the works could encourage companies to freeze their pensions—or get out of the pension business altogether. And questions are being raised about the funding of pensions for public-sector employees.

Yeah, about those public sector pensions...
Treasury Secretary John Snow notified Congress yesterday that the administration had taken "all prudent and legal actions," including tapping certain government retirement funds, to keep from hitting the $8.2 trillion national-debt limit.


Mrs_Thrillhous said...

I'm so glad I entered the workforce with no expectation of a pension. But I'm still mad that retirement fund contributions eat into my clothing budget. My employer should give me more!!

Companies have really cheaped out by switching from fat lifetime annual payments to putting up to 5% of one's salary into a 401k. They should contribute way more than that, since their cost per employee is now a small fraction of what it used to be.

S.W. Anderson said...

I'm fast coming to the conclusion we're seeing a concerted push as Bush & Co. enter their down-and-then-out glidepath.

The idea behind doing things like tapping federal pension funds to cover for runaway spending and make-believe budgeting, and standing idly by while corporations shuck their cumulative responsibility to and for longterm employees, I suspect, is to try to shatter people's confidence that the federal government can or will meet their needs.

Not only does Bush & Co. want to turn people bitterly against government-as-backstop itself, but also as a referee that sees to it businesses do right by employees.

I can't prove it, but don't be surprised if as their times grows shorter, they don't start attempting to pus ever ore outlandish things through.

Tokyo Joe said...

Not to be obtuse, but MT's post raises the question of why should a company give more to fund a person's pension? From a purely capitalist point of view, shouldn't money be exchanged for services rendered and once those services are no longer rendered, playment should stop? I always thought the whole retirement benny thing was an enticement to get the best possible workers to work for the longest possible time. Does a company implicitly owe their employees anything after they stop earning for them? Does it matter what kind of work it is (does IHOP or Walmart have retirement bennies for cashiers and wait staff?).

I'm actually kind of ignorant of how most companies do their retirement since mine is probably the sweetest deal out there that I haven't really looked at any others. But I am interested to hear more about other systems.

S.W. Anderson said...

Retirement benefits are an inducement to stay on — or at least they were back when many jobs were stable, longterm propositions.

Retirement benefits are actually part of an employee's compensation, invested on their behalf by the employer. In a stable work force situation, T-bonds, annuities and such can be purchased and set aside to mature for very little administrative cost.

Any more, many employers don't want a stable work force. Owing to the daunting costs associated with health care coverage and if anything happens to a worker on the job, when employees get to an age where they're likely to start having problems with weight, blood pressure, arthritis and so on, employers get anxious for them to retire early or get laid off permanently.

What's more, in a rapid turnover to a younger work force, a CEO or company owner can quietly eliminate various perks and benefits, without having so many senior employees around to bitch and moan in front of the newcomers about how much better things used to be. It's all part of the race to the bottom you've surely heard about.

Retirement benefits don't have to be handled by employers. That's just more or less been part of the social contract for about a century and a half. Government can handle it just as well.

Toward the top of the income pyramid, of course, big-bucks folks can handle their own retirement savings.

Below that level, having individuals handle their own retirement savings is a big crap shoot. As came out last year during Bush's big push to privatize Social Security, a person can do everything right for 30 or 40 years, seeing their investments grow handsomely. But then, without warning, if they're unlucky, the market can go south just as they put in for retirement, leaving their finances devastated from then on.

Multiply that experience by several million people, then have it happen over and over again every few years, pretty soon you've got a country full of plenty PO'd elderly paupers.

Thrillhous said...

SWA said it good; Gabby Hayes good. Pensions have traditionally been part of an employee's compensation package, not a freebie employers give out just to be nice.

Otto Man said...

You know, these businesses could all cancel their pensions and scrap their health care plans, and we'd still have people in this country digging in their heels against government-led "socialized medicine" as a remedy.

Capitalism should be about capitalism. Period. Leave the welfare aspects to the government, which can pool all the risk in one pile and remove the fears of losing coverage when you lose your job. And then our businesses can be freed of the costs and headaches and compete squarely with all those European and Japanese companies who don't have to deal with dental plans either.

But, no, that would make us like the commies.

Thrillhous said...

By the way, the thing about the government borrowing against government pension funds? That's actually not the classic defined-benefit pension fund; the gubmint did away with that a long time ago. There are still some older federal workers who were grandfathered in to the defined-benefit pension, but everyone else is in a 401k-style retirement plan.

The government is going to borrow money from one of the mutual funds in the 401k-style plan, the G fund.

Isaac Carmichael said...

SWA is right on. What really gets me peeved is that nowadays, companies like, say, United Airlines can file for bankruptcy and have their pension obligations dissolved, which is essentially the same as a company going to their workers and demanding a large chunk of the salary they received for the length of their employment back.

Yet no fatcats (yes, here we go with the fatcat bashing..) are asked to return any bonuses they received above and beyond their salary.

And OM makes a cromulent point about how increasing health care costs are affecting businesses ability to compete. Our country grew prosperous under the old social contract. If we decide to scrap it, fine, but something needs to fill the vacuum.

S.W. Anderson said...

" SWA said it good; Gabby Hayes good."

Which means? Honestly, I'm not familiar with that expression, so help me out.

S.W. Anderson said...

Sideshow Bob, if that gets to you, try this on for size.

Corporations with shaky finances, usually after an extended period of seriously underfunding their retirement programs, can go into bankruptcy, shifting their retirement obligation onto taxpayers.

A federal entity called the Pension Benefits Guaranty Corp. then takes up the slack — but at a substantial discount to benefit recipients.

So, Dewey Cheatham Corp. ditches its responsibility, PBGC can't make up all the difference and suddenly a whole lot of people have to learn to get by on 20, 30 or 40 percent less.

And oh, by the way, if those suddenly poorer retired and retiring Dewey Cheatem employees end up going bankrupt, they can thank their Republican friends running the government for our new, hardass bankruptcy law. The DC victims may think that new law was just passed to deal with deabeats who overdo it with the plastic, but no, it's going stick it to them, also.

S.W. Anderson said...

"Capitalism should be about capitalism. Period. Leave the welfare aspects to the government."

Absolutely right, O.M. The business of business is proft, warm-fuzzy commercials aside. It's not about keeping things fair, decent and workable for society.

Anyone who thinks business should take on responsibilities best handled by government is as foolish as the person who believes government is best run like a corporation. Both are badly mistaken at a very basic level.

Mrs_Thrillhous said...

I think that, in time, employers will contribute more to their workers' 401k plans. I agree that a company should pay expenses only for current employees. In time, they'll all be offering larger contributions due to competition. The current rate of ~5% of one's salary is just too stingy to be much help in growing the nest egg of a worker they want to keep.

Companies are trying to ditch their expensive healthcare plans too, which makes sense. I'd rather have an insurer I like instead of being at the mercy of what my employer offers, because I have to change plans every time I change jobs. Health insurance should be separate from employment, like car insurance.

S.W. Anderson said...

Mrs. T., I suggest what you really want is a single-payer, comphrehensive health care insurance system run by the government. That would be portable, no matter where you work or what you do.

Under the current system, we're paying horrendous overhead for paperwork, administration and things like the diabolically named "access consultants" whose job is apparently to limit to the greatest extent possible your access to services you've paid for.

Right wingers will scream bloody murder about growing the government and bloated, inefficient bureaucracy. Get one cornered into checking out the Social Security Administration, and it comes out that big, everywhere agency that serves millions is actually one of the most cost-efficient and satisfactorily run agencies in the whole federal government. The IRS gets pretty good marks, too.