Pension Plans in the Corporate Cross-Hairs

by JACK RASMUS (Copyright 2004)

George Bush and Corporate America have a plan! A plan to radically restructure the entire retirement system in the U.S. today! A plan that will completely change both social security and group pensions as they have existed for the past half century, and transform them into personal savings accounts directly controlled and exploited by corporations and financial institutions.

There are basically four kinds of pensions in the U.S. There is the public Social Security System. Two types of group pension plans: Defined Benefit plans and Defined Contribution plans. And there are 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 upon retirement, while Defined Contribution and Individual Savings Account plans do not.

The 401K Plan Rip-Off

Corporations and financial institutions especially like 401Ks, IRAs, and similar individualized plans because they can rip off high fees and raise administrative costs with workers generally unaware, lower the benefit amount at will, borrow from the accounts when they want, pressure workers to buy the company's own 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%-4% of the worker's contribution. If a worker had $100,000 in a 401K, earning 8% over 30 years, every 1% reduction in the 2%-4% 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 own 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 20-40% in only two years! That's what can happen with 401Ks. That can't happen with union negotiated defined benefit plans or with social security.

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 under Reagan, a corporate offensive was launched to break up and dismantle Defined Benefit pension plans.

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%. Today more than 62% have such plans despite the various problems associated with 401Ks noted above. In contrast, in 1981 more than 37% of all American workers were covered under some kind of group pension plan. Today the number is less than 20%.

Group Pension Plans In the Corporate Cross-Hairs

George Bush, Alan Greenspan, head of the U.S. Federal Reserve System, and other conservatives have recently publicly 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 St., the banks, and corporations want transferred into 401K plans in order to invest offshore with, to stimulate stock market sales, and for other business ventures.

But the target is not just Social Security. The privatization of Social Security may be on the Bush agenda in the U.S. But Group pension plans—especially union negotiated Defined Benefit Plans with total funds of $350 billion on hand—are also in the Bush-Corporate crosshairs.

From Reagan through Bush, for two decades now 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 up until 2003, more than 160,000 Defined Benefit plans have gone under in the U.S.!

65,000 of these plans failed between 1975 and 1985, most of which occurred in the Reagan period of 1981-85 as a consequence of 'runaway shops', corporate restructuring and the 'rustbelting' of America at the time. 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 offshoring, Government 'Free Trade' policies, and as corporations in newer services and technology industries increasingly opted for 401K plans. 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 plans.

According to the Government's Pension Benefit Guarantee Corporation (PBGC), there were 112,000 Defined Benefit pension plans in 1983. Today there are less than 31,000 such plans. The following table summarizes this disappearance of Defined Benefit group pension plans.

Current Crisis in Group Pension Plans

The Pension Benefit Guarantee Corporation, or 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 3200 pension plans out of the 160,000 such plans that went belly up since 1980. Most of American workers once covered by these 160,000 plans lost much of their accrued pensions, 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 3200 pension plans and the 1 million workers in those 3200 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--are increasingly at risk! Today pension benefits worth $1.5 trillion insured by the PBGC are exposed because the PBGC itself 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 PBGC fund that insures pension payments to workers in the 3200 plans it still supports, or to other pension plans that may also soon go broke. And as the number of plans participating in the PBGC shrinks, the costs get higher for those pension plans remaining. But they can opt out of the PBGC and increasingly have. In 1980 nearly 80% of all defined benefit pension plans participate in the PBGC. By 2000 only 53% 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 itself become 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 tsunami 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 under-funded by $50 million or more—that's more than 1050 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. And it doesn't even include companies with under-funded liabilities of less than $50 million. Adding the two up, all plans with liabilities, the total under-funding for all pensions covered by the PBGC today comes to about $400 billion as of the end of 2003.

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' move will save these corporations $80 billion that they would otherwise have had to 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 under-funding whatsoever.

The Bush-Corporate Plan for Transforming Social Security & Group Pensions

For Social Security, the Bush plan is to talk up a phony crisis in social security and make workers believe the false charge that the Social Security Fund doesn't have enough money to pay for future retirees' benefits by the end of the next decade. That Bush propaganda campaign is already underway. Should Bush get in office 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 the banks. The same legislation will then provide a 'carrot and stick'. The 'carrot' will be to offer workers tax credits for their payroll tax 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 really 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.

Thus, while there is no real crisis in social security funding today, the Bush plan goal is certainly to create one. Today's phony social security crisis could be turned into a real one if Bush gets his way.

In contrast to Social Security, a real crisis does exist for Group Pension Plans today. And Bush's plan here, we predict, will be similar to that for Social Security. First, the current crisis in Defined Benefit Pension Plans will be allowed to worsen further. Indeed, the Bush administration has been passing rules the past two years that won't resolve the crisis but are designed actually to make it worse. For example, its most recent ruling was to allow corporations with Defined Benefit plans in financial trouble to avoid making additional necessary contributions to their funds for two years. Another recent Bush rule prohibits unions from negotiating changes to their plans if they are in financial trouble. And not least, there are the new arbitrary rules concerning 'Cash Balance Plans'.

Cash Balance Plans represent an offensive 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 or 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—you guessed it—invest in 401Ks offered by the company. 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 is what was intended by management from the outset.

Recent rules passed by the Treasury Dept. of the Bush Government 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 radical 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 even a larger record number of Defined Benefit plans becoming financially unstable and having to be taken over by the PBGC. And as the PBGC's 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.

At this very moment Congress is immersed in a heated debate as the 'Perfect Storm' in the pension crisis gathers offshore and more Defined Benefit Pension plans threaten to sink beneath the waves. The 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. And they will attempt to use the crisis as an excuse for a radical restructuring of the pension system in America.

—Jack Rasmus, National Writers Union, UAW 1981, AFL-CIO.

This article is an excerpt from Jack Rasmus's forthcoming book, THE WAR AT HOME: The Corporate Offensive in America From Reagan to Bush, which is available for pre-ordering along with offerings of other plays, music and videos.

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