The US pension systems for workers are now widespread disasters. Many
corporations and many cities and states lack the money to pay all the benefits
they have promised and legally owe to present and future retirees. Estimates
of the shortfall range around $450 billion in the private sector plus at least
another $300 billion in the public sector. Retired workers with lost or reduced
pensions suffer extra strain on family and household finances. Millions now
working expect pension reductions will be added to the overwork and over-indebtedness
that burden them. Not only for them does disaster loom; reduced pensions will
directly undercut an economy that has become increasingly dependent on consumer
The issue is, at bottom, remarkably simple. Private corporations initially
established pensions to enhance profits. They aimed to reduce the costs of employee
turnover by offering pensions to workers who stayed until retirement. In bargaining
with unions, many corporations offered workers less in wage increases and more
in pension "improvements." After all, pensions not only reduced labor
turnover costs immediately, but they would only cost the corporations later
when workers retired. Unions often accepted labor contracts with less wage gains
in exchange for pensions promising security for retirement years. Of course,
once pensions were established, corporations sought to shift their costs to
workers. Pensions arose in and because of the endless struggle among employers
and workers over wages and profits. Pension benefits altered over the years
as that struggle continued under changed conditions. And, today, the same struggle
confronts workers with the prospect of employers ending pensions altogether.
Particularly after World War 2, pensions were won by many unions whose members'
memories of the Great Depression made pensions very attractive. Several large
corporations agreed to establish them (notably Ford and General Motors), but
often reluctantly and only if they got wage "concessions" in return.
However, once pensions were established, corporations discovered many ways to
"underfund" them (the polite word for not setting aside enough money
to pay for the promised pensions or mismanaging investments made with that money).
When this became a public issue (especially after Studebaker's 1963 collapse
deprived its workers of their pensions), the response was neither strict controls
over corporations nor strict punishments for their mismanagement of pension-funding.
Instead, in 1974, Congress passed the Employment Retirement Income Security
Act (ERISA) that established little real control while setting up the Pension
Benefit Guarantee Corporation (PBGC). The PBGC is a government insurance company
that is supposed to pay promised pensions when corporations fail to provide
enough money for them.
It should come as no surprise that ERISA was full of carefully crafted loopholes
that allowed more, not less, corporate underfunding of pensions -- nicely documented
in Roger Lowenstein's "The End of Pensions" in the New York Times
(30 October 2005). So, today, corporations have underfunded their pensions by
hundreds of billions. Therefore, their workers will suffer reduced support in
their retirement or else Washington will have to shift billions to the PBGC
so it can pay pensions for the corporations. If such billions are taken from
other programs, workers will likely suffer reduced social services. If such
billions come from higher taxes, we need to remember who will actually pay most
of such extra taxes. The fact is that US corporations have steadily shifted
most of their federal tax burdens onto US households, and that wealthy households
have likewise shifted much of their federal income tax burden onto middle and
lower income households.
Since the Bush regime leaders (and their Democratic counterparts) refuse to
demand pension reparations from corporations, the private-sector pension disaster
presents this choice: (1) cut pension benefits and thereby condemn private-sector
retirees to financial difficulty, poverty, or becoming burdens on their families
after a lifetime of labor; or (2) give the vast majority of already stressed
households reduced federal programs and/or new tax bills. The corporations win
either way; and the working class loses either way. Sound familiar?
Nor is the situation much different for government employees working for states,
cities, and towns.There, politicians have offered public employees relatively
generous pension benefits in exchange for their votes. Such deals benefit politicians
in two ways. First, they can avoid tax increases now because the costs of pension
benefits happen in the future when they hope to be in higher political positions.
Second, because of remarkably loose accounting rules, politicians could do just
what the corporate executives did, namely underfund the pensions for public
employees. To pay for the legally mandated public pensions, eventually the states,
cities, and towns will have to raise taxes or cut their spending on other public
programs and services. Given the politicians' fears of taxing corporations or
the wealthy or of cutting state programs benefiting them, the costs of the public
pension disaster will also fall on workers.
First results of the unfolding disaster are already here. Fearing that a desperate
population might eventually demand that they actually pay for promised pensions,
corporations are ending pensions, often by not offering them to new employees.
In 1980, roughly 40 per cent of private-sector jobs had pension benefits; today
less than 20 per cent do. Major US corporations with unfunded pension obligations
(including, for example, Delta Airlines, Delphi Corporation, Bethlehem Steel,
and Northwest Airlines) have increasingly used bankruptcy laws to avoid them
(i.e., shift them onto the PBGC). Other companies face situations not so different
from that of Ford Motor Company whose unfunded pension obligations as of December
31, 2003, totaled $11, 689, 000, 000, while the total value of Ford Motor Company
on that date was $89,000,000 less than that (Bernard Condon, "The Coming
Pension Crisis," Forbes Magazine, 12 August 2004). Yet the PBGC cannot
pay for present -- let alone anticipated future -- failures by private corporations
to pay their pension obligations. The PBGC already has a deficit exceeding $30
billion. Without the money it needs to pay for the pensions it insured, the
PBGC will now likely add new demands on federal tax revenues.
In the public sector, Alaska has responded to unfunded pension obligations
to its employees by deciding to offer future public employees there no pensions
at all. Michigan made similar moves, and other states may follow their examples.
The immense scope of underfunded pension obligations to municipal employees
is only beginning to be measured and understood -- to the terror of local politicians
and local economies.
The neo-liberal age we are declining through displays many new policies, programs,
and laws pursued without regard to their future social burdens. These include,
alongside the pension disasters, transforming the US from the world's major
creditor into its major debtor, despoiling the environment, working families
taking on historically unprecedented levels of personal debt, increasing the
US trade deficit, and cutting public services. Promoted as "components
of an ownership society" or "efficiency-driven" or "required
to compete in the world economy," what these policies and programs share
is the short-run boost they provide to corporate profits and political careers.
The watchword of this age seems to be "grab it all now; who knows or cares
what deluge may follow." Thus, to cite yet another example, the underfunding
of pensions is small compared to the underfunding of private sector retirees'
health plans (see the December 19, 2005 Business Week story: "America's
Other Pension Problem").
Pensions have represented important hopes, expectations, and investments for
millions of workers. In the endless struggles between those who produce the
profits and those who receive and disperse them, corporate and political leaders
"managed" pension programs into disastrous dead ends. Should we expect
anything different from new laws, new accounting rules, and new policies for
the PBGC so long as those endless struggles continue? Solving the pension disaster
requires something altogether different. If the producers of profits were themselves
to appropriate and disperse the profits -- if workers were collectively their
own bosses -- then we might realistically expect pensions to adequately serve
their intended beneficiaries.
[Rick Wolff is Professor of Economics at University of Massachusetts at Amherst.
He is the author of many books and articles, including (with Stephen Resnick)
Class Theory and History: Capitalism and Communism in the U.S.S.R. (Routledge,