Public Comment

The pension scandal: the great betrayal

Harry Brill
Friday January 06, 2017 - 03:38:00 PM

The pensions for about 1 1/2 million retirees, except for retirees who are at least age 80 or who receive disability, will soon be cut by up to 60%. The cuts apply to retirees whose unions have the same collective bargaining agreement with at two or more employers, which cover more than 10 million workers. These workers have defined benefit plans in which an employer promises a specified pension payment upon retirement that is based on a worker's history rather than depending on an individual's investment returns. The justification for slashing the pensions in firms that have multi-employer contracts with unions is that these pension funds will soon be depleted. So it is necessary, the employers claim, to reduce the pensions now to assure that retirees would at least receive some income. 

Workers have been able to depend to some extent on the Pension Benefit Guarantee Corporation (PBGC), which was created by Congress to protect the pensions of working people. But the agency has recently been complaining that its funds are drying up too. If PBGC runs out of money, the "guaranteed" pension benefits could drop by more than 90 percent or even to nothing at all. 

The consequences for retirees will be very severe since many workers and their families will wind up in poverty and lose their homes. If we take account of the considerable extent that retirees will suffer, it is reasonable to ask how threatened the pension money actually is, and are there alternative options to protect the pension funds. Guess what-- when we look at the situation closely, the problem is nowhere near the dire straits that business claims. According to the business community, cuts are justified when a pension plan is expected to become insolvent within 20 years. Incredible! Cut pensions now by up to 60 percent because pension money is expected to be depleted 20 years from now! Hmmm! Isn't there something wrong with this arithmetic? 

How did this bizarre state of affairs come about? To give employers plenty of latitude to make steep cuts in pensions, Congress in 2014 passed the Multi-Employer Pension Reform Act, which President Obama signed. The law allows pensions to be reduced substantially by pension trusts, which are overseen by trustees appointed 50-50 by the union and employers. Their decision is then submitted for approval to the Treasury Department. The legislation doesn't give an inch to working people. Even if there is a significant financial revival in the pension plan after pensions are reduced, there is no provision in the law that requires employers to restore lost benefits. 

Despite the gravity of the federal legislation, there were no congressional hearings. The pension law was slipped unnoticed into a massive spending bill. The legislation passed not only because of business support. Crucial was the vigorous advocacy for the legislation by several major labor unions. 

In fact, business and Labor submitted a joint report to Congress entitled Solutions Not Bailouts. "Solutions" is the euphemism for cuts. The title of the report served to assure Congress that the pension plans were not seeking public money. But Congress beginning with the 2008 recession nevertheless showered the financial corporations with tons of money. If bailouts are okay for the financial sector even though they contributed to the nation's economic problems, why hasn't Congress been interested in assisting working people too? 

The federal government has claimed that the bailout money given to the financial industry in response to the 2008 recession was relatively low. But a high level executive at Goldman-Sachs claims that the real costs of the bailout exceeded 14 trillion dollars. In fact, although it is nine years since the initial bailout, the federal government is still providing funds to some of the large financial institutions. Some of this money has boosted the income of executives. Where does the money come from? You guessed it--the taxpayers, most of whom are working people. 

The federal government should cease subsidizing the corporations and their executive staff and instead transfer these billions of dollars of bailout money to the Pension Benefit Guarantee Corporation so that it can meet its legal obligations to protect the pensions of workers. 

. Rather than cutting pensions, business should be legally required to pay the full premiums to assure that working people receive what they were promised. The contribution by employers to the employee pension plans has always been underfunded. But workers have been misled to believe that the retirements pensions were guaranteed. Why, then, should working people be deprived of a pension they earned even though they had been cheated by their employers all along. 

Unlike business, the mission of labor unions is to represent the best interests of workers. Since many trade unions have huge financial resources and pay excessive salaries to their executive officers, they are in a position to contribute to the pension funds if business and the federal government cannot be persuaded to do so. Close to 500 union officers and employees are paid over $250,000 a year and many of these officers receive over $400,000 and $500,000 annually. Also, millions of dollars are spent on conferences in luxury locations, such as Las Vegas, where hotel room rentals are very expensive. 

Lobbying to win favorable terms for unions is another substantial expense. But this expenditure is not always on behalf of their union members, such as the costs of supporting lukewarm candidates for office and lobbying Congress to allow business to substantially cut pensions. So is it asking too much of labor unions to do an about-face by contributing to the pension fund some of the millions of dollars that they have received from union dues? 

Indeed, the money is there, but not the will. As the records shows, some unions are more interested in accommodating the business community than their own dues paying members. Take for example the nearly 2 million member Service Employee International Union. SEIU has a reputation for engaging in sweet heart contracts. That is, to encourage a business to allow it to organize, SEIU has agreed with employers that it would avoid making strong demands. According to the Wall Street Journal, SEIU negotiated a deal with a corporation although the company's employees didn't even know that the union was meeting with management. 

Among the other unions that support the pensions cuts are the building trade unions, United Food & Commercial Workers, United Mine Workers, United Brotherhood of Carpenters, and Laborers International Union of North America. The employees in these unions are certainly not getting their money's worth. Although many other unions formally opposed the legislation to slash pensions, they did not organize a campaign to defeat the employers. 

In contrast to multi-employer pension plans most workers have retirement plans that provide benefits to employees by only one employer. Could these plans be next on the chopping block? 

What alternatives, then, do working people have? With regard to pension issues and other workplace problems, they have to first agitate and organize within their own union or workplace. Obviously, workers who are employed in the same workplace will most often have common concerns, and of course they are in a position to pressure the same union leadership and employers. 

Take for example the vigorous organizing efforts of workers in the Teamsters Union. In the recent union election for national office they came close to replacing their powerful pro-business President, James Hoffa (48.5% to 51.5%). Indeed, working people should never forget that they have a mighty strong weapon at their disposal, which is the workers themselves acting collectively and democratically.