After working 33 years at Bethlehem Steel, James Roberts expected to retire with a secure pension. A member of Steelworkers Local 1688 in Harrisburg, Pa., Roberts retired in November 2000 with full pension and health care benefits. About a year after Bethlehem declared bankruptcy in December 2001, the Pension Benefit Guaranty Corp. (PBGC), the federal agency that insures pensions, took over the company’s pension plan. The PBGC cut Roberts’s monthly pension
payments by more than one-third, leaving him financially devastated.
“It’s not like I was making $60,000 or $80,000 a year on my pension and could afford to take a cut,” he says. Before the PBGC cut his payments, Roberts received $1,888 a month or $22,656 a year. Now he receives $1,243 a month—$14,916 a year. He struggles to buy the daily medications he needs for a degenerative bone disease, high blood pressure and cholesterol.
“I manage to get by because my doctors give me samples of the most expensive medicines,” says Roberts, 57. Recently, he took a part-time job to make ends meet. “After the bankruptcy court allowed Beth Steel to walk all over us, then the government came in and did the same thing,” he says. “I’ve lost confidence in the pension system in this country. The whole system is stacked against the workers.”
Roberts does have some hope, though, because his union is fighting for retirees like him. The USWA recently negotiated an agreement under which ISG, the new owner of the former Bethlehem Steel plants, will pick up a portion of retirees’ health care costs. In February, the union expects to start a prescription drug program for Bethlehem Steel retirees.
Roberts and the nearly 100,000 other Bethlehem Steel retirees are among the hundreds of thousands of steel-workers who lost their retirement security as well as their health care benefits. Some 39 steel companies have declared bankruptcy since 1997. As part of the bankruptcy filings, the companies routinely sought to abrogate their union contracts and terminate the pension plans. Union and industry leaders say the Bush administration’s failure to enforce the nation’s trade laws to stop illegal dumping of cheap foreign steel caused the nation’s steel industry to collapse.
The PBGC usually waits until a bankrupt company or the bankruptcy court terminates a pension plan, but in Bethlehem’s case, the agency took the rare step of assuming control before resolution of the bankruptcy. The takeover came one month before regulations would have required the agency to pay a greater portion of the Bethlehem retirees’ pension.
“Shirking pension obligations worker shave earned is no way for the government’s pension insurer to act,” says USWA President Leo Gerard. “These folks had an entitlement that qualified under the law. Is that any way to treat people in this country?”
Like millions of workers, Roberts had planned for a secure retirement built on the three layers of retirement protection America’s workers traditionally have depended upon: employer pensions, Social depended upon individual savings. But the private pension system is under attack by an unfair global economic system and by opportunistic corporations trying to increase the bottom line on the backs of workers, union leaders say. Meanwhile, President George W.Bush is leading an assault on Social Security. Bush has made the privatization of the system a cornerstone of this second-term agenda.
To ensure workers retain solid pension plans and to make certain more workers receive pension coverage they can count on, the AFL-CIO and its affiliated unions are developing key principles for pension policy reform. The federation will lobby for real pension reform and push for the expanded use of good pensions.
Says AFL-CIO Secretary-Treasurer Richard Trumka: “On the one hand, the Bush administration is trying to privatize Social Security, and at the same time companies are dropping out of the pension business. Unless we act now, eventually workers will be solely responsible for their own retirement.
Employers attacking guaranteed pensions
Faced with increased competition from cheap imports and a sluggish economy, employers are looking for easy ways to reduce costs. Many are using the nation’s bankruptcy laws to cut expenses by breaking contracts with workers and eliminating their pension obligations or reducing the pension payouts Most union-negotiated pension plans, including the one at Bethlehem, are defined-benefit pension plans, which for decades have guaranteed retirees a
fixed monthly income. These defined-benefit plans are usually funded entirely by employers through tax-exempt contributions and automatically cover all qualified employees. Since 1978, the number of defined-benefit plans plummeted from 128,041 plans covering some 41 percent of private-sector workers to only 26,000 today, according to the nonpartisan Employee Benefit Research Institute(EBRI). The US Bureau of Labor Statistics finds 21 percent of workers in the private sector have defined-benefit pensions.
Rocky conditions in the nation’s financial markets have put tremendous pressure on pension funds and greatly increased the contributions some employers must make to their plans. Recent large stock market losses have squeezed pension fund assets.
At the same time, the size of pension liabilities has gone up because of falling interest rates. Pension funds are required to calculate how much cash they need on hand today to pay future promised monthly payments. Those projections are based on the expected return on the fund’s investments using long-term interest rates. If the long-term interest rate is set low, the projected return will be smaller than if the rates were higher. The lower the rate used, the more cash the fund needs on hand today to cover future benefits.
At many companies, this has led to a growing gap between how much money pension plans have and how much they are supposed to have on hand to secure future benefits. At some companies, this under funding has triggered special federal rules that require very large cash contributions, similar to balloon payments due under some types of mortgages.
Many companies have eliminated their defined-benefit plans—some 1,197 in 2003, according to the PBGC—and others have reduced the value of benefits and shifted to providing benefits
through 401(k)s and other defined-contribution plans. In these plans, the employer only contributes a fixed amount to the plan each year. Defined-contribution plans shift the investment risk and responsibility to individual workers and typically reduce corporate costs. Since 1978, the number of defined-contribution plans has more than doubled from 314,592 to 840,301, now covering some 42 million workers, EBRI reports.
Some companies have frozen their pension plans—meaning workers do not earn any new benefits under the plan—or stopped offering them to newly hired workers. In December 2004, IBM dropped its pension plan for new employees and will offer only 401(k)s instead.
A recent survey of corporate financial officers by the global asset management company SEI Retirement Solutions found that fully one-third of chief financial officers intend to close their defined-pension benefit plans to new plan participants within the next year. The sustained attacks on workers’ pensions make strengthening Social Security and protecting it from the perils of privatization proposed by Bush more critical then ever, union leaders say.
Airline workers hit hard by corporate bankruptcies
The failure of the pension system has hit airline workers hard. After the Sept. 11,2001, terrorist attacks, the nation’s airlines suffered severe losses in revenue and many declared bankruptcy. Workers at United, US Airways and other airlines agreed to millions of dollars in salary and benefit cuts to keep the fleets flying. At United the workers agreed to $13 billion in concessions between 2003 and 2009.
Despite the workers’ good-faith efforts,United unilaterally cut retiree health benefits to shave operating costs. Last summer,United’s management stopped making legally required contributions to its employee pension fund and said it will not resume payments until the company has emerged from bankruptcy. As a result, it missed $568.4 million in required pension payments in 2004. The company now is asking the bankruptcy court for permission to
terminate the pension plan and turn it over to the PBGC.
Sarah de la Cruz, a 31-year-old United flight attendant and member of Flight Attendants-CWA, worries about her future. “I did a pension projection, and if the plan is terminated, I’ll lose $2,000 a month in retirement. Management is planning to cut our pay and make our health care more expensive. I feel angry,betrayed and helpless.”Workers and union leaders worry that United’s plan to terminate its pensions could open the flood gates to more such actions. They say other airlines could claim they must terminate their defined-benefit plan to remain competitive.
Last December, the PBGC moved to terminate the United pilots’ plan. US Airways management, with the approval of a bankruptcy court, terminated its pilots’ plan in 2003.
Public pensions under attack
Some of the largest defined-benefit plans, those designated for public employees, are under attack by corporations and Republican governors. Public employee pension plans, which have combined assets estimated at $2.6 trillion, have been active in demanding corporate reform.
The California Public Employees’ Retirement System (CalPERS), with assets of $177 billion, has campaigned for changes in the election of directors at such Fortune 500 companies as Safeway and Walt Disney. The AFSCME and SEIU employee pension funds, the New York City Retirement Systems and the State of Connecticut Retirement System also are actively fighting for shareholder rights.
In December 2004, Sean Harrigan, president of CalPERS and a champion of shareholder rights, lost his seat on the CalPERS board when the California state Personnel Board, the joint management–labor agency he represented, replaced him after corporate leaders complained about this activism. Harrigan, a vice president of the United Food and Commercial Workers, pointed out publicly corporate managers’ anti-investor conduct.
At the same time as public pension funds’ share holder actions are coming under attack, some Republicans are trying to eliminate the funds altogether. During the stock market boom in the 1990s, many cities and states increased pension benefits as part of collective bargaining agreements with firefighters, police, teachers and other public employees. When the stock market crashed in 2001, many public plans nationwide became under funded. Pensions& Investments magazine last year estimated the average major public plan nationwide was only 88 percent funded. Now Republican governors are using public pension plan under funding as a reason to attack public employee pensions.
In California, Gov. Arnold Schwarzenegger(R) is supporting a proposal to scrap current defined-benefit pension plans for teachers, firefighters and nurses, forcing new employees into a 401(k)-style,defined-contribution plan run by private, for-profit investment companies.
Multiemployer plans fight for reform
While many single employer plans are folding, multiemployer plans—those funded by unrelated companies in the same industry—are in better shape. But problems are on the horizon. After three years of stock market losses, some of the funds are in danger of not having enough money to meet legally required funding levels. Federal law requires pension funds to have enough money oh hand to secure all future benefits.
Although their long-term funding is not in jeopardy, multiemployer pension trustees face the possibility that they will have to cut benefits or increase employers’contributions to the plans to meet the technical funding requirements, a move that could bankrupt some of the companies. The National Coordinating Committee for Multiemployer Plans (NCCMP), which includes 22 affiliated unions, supported legislation last year that would have allowed the funds to develop long-term solutions to the under feeding over 30 years instead of 15 years as required by the present law, similar to refinancing a home mortgage.
The measure passed the Senate, but House Republicans and the Bush White House killed the provision in a conference committee. The NCCMP is developing new proposals to reform the pension system that will give trustees tools to repair damage to the funds before they reach the point of being terminated.
Employers draining government pension fund fallback
“There are real concerns that these bankruptcies will result in massive rate increases for the PBGC that will drive employers away from defined-benefitplans,” says Trumka.
If the other companies terminate their plans, the PBGC would have huge financial obligations, says Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries. While the PBGC’s total deficit for single employer pension plans increased to $23.3 billion in fiscal year 2004, up from $11.2 billion a year earlier, the PBGC is not going broke. With assets of about $39 billion, it will be able to continue paying benefits for another two decades. The $23.3 billion deficit is based on the technical amount it would need to cover all its future pension obligations, the same dilemma faced by multiem-ployer plans. The Government Accountability Office (GAO) warned in a Jan. 25 report the termination of additional large,under funded pension plans could worsen the PBGC’s finances and force Congress to either make drastic reductions in pension benefits or bail out the system.
At airports across the country in December, members of the AFA-CWA, IAM and their supporters rallied to focus attention on the critical need for government action to stop management’s assault on workers’pensions, health care and jobs.
Speaking to a crowd in Washington, D.C., AFA-CWA President Pat Friend said, “the position of many airline executives that workers must subsidize one failed business plan after another must end. If they are not stopped, the continuing cuts in wages, benefits and working conditions across the industry will spread...to other industries.”
In November and December, AFA-CWA members approved a global strike if a federal bankruptcy court agrees to allow an airline to throw out its collective bargaining agreement. IAM also is mobilizing to stop United’s bankruptcy plan from going into effect and have filed suit against the plan.
“The deepest recesses of hell are reserved for the employers, corporate bankruptcy attorneys and government officials who conspire to eliminate pension benefits for millions of U.S. workers,” says IAM President Tom Buffenbarger.
The bottom line, workers say, is their hard work is not being rewarded, and management is thumbing its nose at its employees. “We have given our all,” de la Cruz says, “and it has been wasted by a management that continues to put the problems of the airline industry on the backs of the employees.”
