The Pension Theft Crime Wave Rages On
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The nation’s union-haters have a juicy new target, Detroit’s public employees, ever since the city became the largest in history to file for bankruptcy. Detroit unions will wrangle with a bankruptcy judge this fall over how to handle $3.5 billion in pension obligations for 12,000 retirees.
City retirees receive a princely sum of $19,213 per year on average. Pension obligations to these workers account for less than 20 percent of Detroit’s debt. But the facts haven’t kept retirees from bearing the brunt of the bankruptcy fallout.
In fact, politicians across the country are seizing on Detroit’s hard times as an excuse to trim public pensions closer to home. For them—and for bankers angling for a piece of the action—this could be the breakthrough they’ve been waiting for.
Lawmakers from both parties have climbed onto the same noisy bandwagon as right-wingers who complain that public pensions are too fat, ballooning out of control because of unions run amok. They throw in the fact that retirees are living longer, and tout the soon-to-be swollen ranks of retiring baby boomers, to add some statistical cover to their judgments and finger-pointing.
But the fact is that the crisis in funding for pensions, both private and public, is a manufactured one. It’s rooted in the Enron-style accounting and “something-for-nothing” financial engineering that set off the 2008 financial meltdown.
Making wishful assumptions about future stock market performance, corporate execs shortchanged pensions, diverting dollars into outsized dividends and stratospheric bonuses for themselves. Many were long gone by the time the bill came due.
The same dynamic drove politicians—hardwired to tell people what they want to hear—to claim that sure, corporations and the rich could have tax cuts while public sector workers continued to receive their pensions and regular raises.
Now that state and local governments are swimming in red ink because of those tax cuts and the Wall Street meltdown, unions are caught flat-footed. Their erstwhile allies, after testing today’s political winds, now line up to ax their pay and pensions.
Rhode Island drew the road map for politicians everywhere two years ago, slashing state and municipal workers’ pensions with a brutal “reform” that forced most workers over to a hybrid plan and froze cost-of-living adjustments.
The brunt fell on retirees like 19-year firefighter Paul St. George, whose $36,000-a-year pension turned into $24,000 overnight. He had to move out of his house into an apartment and find full-time work as a maintenance man, he told the press.
Adding insult to injury, the state handed more than $1 billion in pension funds over to hedge fund companies to manage—in exchange for an expected $2.1 billion in fees over 20 years, effectively taken straight out of the pockets of retirees, who would forego $2.3 billion in COLAs over the same period.
No wonder Wall Street has pumped $2 million into the possible gubernatorial campaign of Gina Raimondo, who engineered the Rhode Island scam, as Matt Taibbi recently reported for Rolling Stone.
Even before the 2008 financial crisis and the gaping holes it created in state and local budgets, pensions were an endangered species. In 1980, 40 percent of the workforce had traditional defined-benefit pensions. Today it’s less than half that.
Corporations drove this shift—axing retirement plans altogether when they could get away with it, switching to 401(k) plans where they couldn’t. These programs were legalized in 1978 and were originally designed to supplement traditional pensions. But 401(k)s quickly provided a cheap escape route, costing companies about half as much as traditional pensions. Even more important, 401(k)s shifted risk off companies and onto us.