Eating Our Young: Where Pensions Are Going

Remember the 3-legged stool that was going to take you into a secure retirement — or save you the problem of having to support your aging parents? Well, it’s a pretty shaky seat. First, Bush tried to destroy Social Security. Then savings and 401Ks are threatened by a stock market that just got back to where it was 5 years ago — and this was cause for celebration. And now it’s looking like pensions — the kind you could count on — are going the way of brass subway tokens.

And speaking of subways, we saw the first rumblings of the demise of pensions as we know them in last month’s transit strike.

Cities and states are beginning to emulate such giant — and not all struggling — corporations as Bethlehem Steel, Delta and United Airlines, Delphi Auto Parts, Verizon, Motorola, and IBM, to name a few, that have ended or are moving toward ending their employee pension plans.

As you may recall, the transit strike was precipitated by an MTA demand to raise the retirement age and have workers contribute to their pension funds. Mayor Bloomberg, seeming to forget that pension cost savings were part of the city’s initial contract demands this round, has vowed to make “pension reform” (read Tier V) a priority for the next bargaining round. (Although, interestingly, he promised support for “55/25” legislation for UFT Tiers 3 and 4 members in the current contract.)

Claims for the amount of “underfunding” of private and public pension funds reach into the hundreds of billions of dollars, striking fear into the hearts of taxpayers. (Even corporate pension obligations could become a tax burden as they are guaranteed by the federal government. The cost of the bailout would far exceed that of the savings and loan associations in the 80s.)

And of course, those who a) want to kill unions and b) want to slice government services and costs are seizing the opportunity.

Why unions? Well, that’s the good news. Unions have become the last bastions of traditional, defined benefit pension programs. Unlike the private sector, where only 20% of jobs offer guaranteed pensions, 90% of government workers have traditional benefit plans.

The difference is unionization. 36% of government workers belong to unions, while only 8% of private workers do. When government workers are not unionized, only 15% have defined benefit plans. (One more reason to thank God for the union.)

And, not to worry. Overall, public pension funds are 88% funded. In fact, the hysteria about underfunded pension funds is largely unfounded. Those estimates are based on the supposition that the funds would need to fund all their liabilities at once because every employee, young and old, retires at the same time. And of course the estimates vary widely, depending on fluctuations in stock market.

Here in NYC we see the same fear-mongering when, for example, the Citizens Budget Commission rails about sky-rocketing public pension costs. They point to the $2.3 billion that NYC contributed to public pensions in 2004, 8% of its budget, and predicts it will double by 2008, But what the CBC doesn’t mention is that pension costs were very low in the booming 90s, some $615 million in 2000, or about 1% of the budget. CBC’s measures of pension cost growth begin at that low point. If instead it measured against the 1980s, when pensions accounted for 24% of budget., today’s 8% would look low.

Ideologues forget the social contract made after the Depression. Government paid lower wages in return for providing future security. This allowed a stable, committed work force and better public services at a lower current cost; in other words, lower taxes.

Still, attacks on pensions will accelerate say most experts. Alaska and Michigan have already closed pension funds for future employees; California will put the question on the 2006 ballot. 401Ks, or “defined contribution” plans are the favored choice. In New York State, current pensions are constitutionally protected, but future generations are vulnerable.

The fact that few private-sector workers have guaranteed pensions any longer may make it seem hard to argue for better pensions. But joining this race to the bottom is not the answer.

People say they are concerned about the “unfunded liabilities” that pension benefits pass on to future generations. They should remember that pensions are funded, not mostly by taxpayers, but by the earnings of invested pension funds.

In contrast, ending pensions would create a liability for future generations that would face them as an immediate need, with no time to wait for returns on investments. Ending guaranteed pensions would saddle future generations with supporting their parents, and future taxpayers with supporting an impoverished generation of old people. If we put our retirees at risk, we put the next generation at risk as well.

Depending on 401Ks to provide for retirement is like living on a volcano’s side. Maybe it will remain stable, and maybe it won’t. That’s why defined contribution plans break that social contract. The security that government employees were promised in return for lower wages would disappear.

In reality, the “ownership society” that Bush wants is just a nicer way of saying “each man on his own; everybody for themselves.” Cities and states can withstand the ups and downs of the stock market better than individuals can. They can spread the risks over time and over many individuals. But if an individual annuitizes a 401K at retirement when the market is low, he or she can end up with thousands less per year than anticipated. And if (God forbid), the retiree or his/her spouse lives longer than expected, the money runs out. Then what?

Society has a generation of octogenarians to support.

As unionists, we cannot allow the city to pick us off in the next contract round, one by one, as the MTA tried to do with the TWU. The city’s unions read the tea leaves during the transit strike; they saw they’d be next if the TWU folded. That’s why Randi Weingarten, Brian McLoughlin and others rushed to Toussaint’s side.

To withstand this assault, to stand up for our progeny as the TWU did, we’ll have to stand together. But, based on what happened in this contract round, I worry. Some of the other unions seem to have adopted the Bush philosophy, at least when it comes to the next generation.

I hope their labor sensibilities return fast. Because it was never more true: If we don’t stand together, surely, we’ll all go down together.