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The Pension Theft Crime Wave Rages On

Rhode Island has become a model for how to rip off teachers and firefighters and enrich Wall Street.

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Traditional pensions were a stab at a collective solution to a universal problem—how to lead a decent life when your working years were through. Pooling retirement savings among workers at a large company, or across an entire industry, smoothed out insecurity for everyone. Now it’s just you and the stock market.

The research shows you’ll end up with far less in your pocket. A 401(k) typically yields 10 to 33 percent as much as a traditional pension. Half of all participants between the ages of 55 and 64 have less than $120,000 in their 401(k)s.

PRIVATE SECTOR PLAYBOOK

For union members in the private sector, today’s attacks on public sector pensions have a familiar ring. Corporations spent years gaming the defined-benefit pension system in a similar pattern: First, siphon off pension contributions to pump up profits—as simple as tweaking the company spreadsheet to reflect a rosier forecast of your investment returns.

Then, once the accounting gimmicks are played out, howl about legacy costs, declare bankruptcy, and stick someone else with the bill.

Companies from steel giant LTV to Twinkie-maker Hostess have followed this pattern. And things have gone from bad to worse in the five years since Wall Street’s collapse.

At the end of 2012, private sector defined-benefit plans had only about 75 percent of what they owed participants. Shortfalls this year could swell to as much as $322 billion—up from $47 billion at the end of 2007—according to the Pension Benefit Guaranty Corporation.

The PBGC, a government agency established in 1975 to backstop private sector pensions, is funded by premiums paid by healthy plans, along with assets recovered from bankrupt companies. But swamped today with failing plans, the agency is operating in the red. Last year the deficit between its income and its obligations swelled to a record $35 billion.

Even before the red ink, the PBGC’s payouts typically amounted to less than half of what retirees were promised by their employers. Republic Steel is an egregious example: workers watched their pensions get cut by up to $1,000 a month in 2002 when the PBGC took over, then get cut again in 2004.

In the second round, some retirees saw their benefits fall as low as $125 a month.

The PBGC’s bulging deficits could trigger even more cuts to payouts, with Washington in no mood for any emergency appropriations.

For workers in multi-employer pension plans like the Teamsters’ ailing Central States Fund, pending federal legislation would permit preemptive cuts even without PBGC involvement (see Stealth Bill Would Allow Cuts to Current Pensions).

ONE-TWO PUNCH

Though 80 percent of public employees still have traditional pensions, more and more politicians are reading from the private sector playbook. After skipping payments into their pension funds repeatedly during better economic times, when the funds looked flush, now they are pushing for deep cuts.

“The numbers speak for themselves—the pension system as we know it is unsustainable,” Andrew Cuomo insisted after his election as governor of New York.

Cuomo, like politicians across the political spectrum, has pitted public employees and their unions against taxpayers—while the corporations and 1%ers who benefited from decades of tax cuts quietly slip out of the spotlight.

With two-thirds of public sector pensions facing shortfalls—to the tune of $700 billion in 2010—these attacks from politicians are gaining traction.

New York, one of 10 states to push through major changes to pensions last year, added a sixth tier for new hires in its state plan. Other states took similarly severe measures, such as dropping traditional pensions for new employees in favor of defined-contribution plans, increasing age and service requirements for retirement, and jacking up employee contributions. Alabama took the controversial step of terminating its traditional pension plan.