Some years from now, in an economic refugee relocation "Enterprise
Zone," your kids will ask you, "What did you do in the Class War, Daddy?" The
trick of class war is not to let the victims know they're under attack. That's how, little by little, the owners of the planet
take away what little we have.
This week, Dupont, the chemical giant, slashed employee pension benefits
by two-thirds. Furthermore, new Dupont workers won't get a guaranteed pension at all -- and no health care after retirement.
It's part of Dupont's new "Die Young" program, I hear. Dupont is not in financial straits. Rather, the slash attack on its
workers' pensions was aimed at adding a crucial three cents a share to company earnings, from $3.11 per share to $3.14.
this week, the government made it official: For the first time since the Labor Department began measuring how the American
pie is sliced, those in the top fifth of the wealth scale are now gobbling up over half (50.4%) of our nation's annual income.
Every reform by the Republic/Bush team is a reform at the expense of the public weal. In August of 06 a reform of pension plans was passed. Benefits
are a form of wages, when a company cuts health and retirement benefits, it has cut wages--jk.
Pension Plans In Corporate Cross-Hairs
By Jack Rasmus 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.kyklosproductions.com).
Recently 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
As 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
There 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 Savings 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
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
George 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
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
PBGC 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
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.
For 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.