New Pension Laws Squeeze Workers

As wages for American workers continue to drop, the federal government has announced a new package of pension laws.  Under the new laws it is now legal for companies to convert plans called "Defined Benefit plans" into what are called "cash-balance plans." Translated from the language of the insurance industry, this means that the bosses now have the 'right' to violate pension guarantees.

Pensions are  deferred wages, money owed by the company to the workers to be paid once  they retire.  To throw out these guarantees is an act of theft, pure and simple. This comes a year after the Bush Administration pushed through laws that made it practically impossible for all but the very richest to claim bankruptcy protection from creditors. So while making it virtually impossible for working people to escape personal debt, they will now allow the bosses to wipe clean their own debts to workers.  It is clear from this that the government is in no way "impartial".  It is very partial – to the bosses.       

In traditional pension plans, a worker receives a guaranteed percentage of their past income upon retirement. The pay-out calculations are usually based on the wages or salary received during the final years of employment, when pay is the generally at its highest level. This method rewards workers for long-term employment – for giving the best years of their lives to the boss.       

But the new "cash balance" plans calculate benefits in a completely different way. Instead of guaranteeing a percentage of past income, the new plans base pay-outs on the average pay throughout a worker's career. There is no reward for long-term employment.       

The new laws also make it all but impossible for companies to maintain traditional pension plan investment schemes, which are more secure, even if they wanted to. The new laws make it very attractive for pension fund managers to switch over to 401(k) plans tied to the stock market. Companies are big fans of 401(k) plans because although they are required to make matching contributions to workers' plans initially, they can later pull their contributions.

The corporations argue that pension fund reforms are necessary because the funds are in the red. That is true in some cases. But why are they losing so much money? Are our pensions really such an unaffordable luxury?  A recent article in the Wall Street Journal answers these questions and exposes the bosses' demands for what they are: the further enrichment of the few at the expense of the many.

"Boosted by surging pay and rich formulas, executive pension obligations exceed $1 billion at some companies. Besides GM, they include General Electric Co. (a $3.5 billion liability); AT&T Inc.($1.8 billion); Exxon Mobil Corp. and International Business MachinesCorp. (about $1.3 billion each); and Bank of America Corp. and PfizerInc. (about $1.1 billion apiece).

"Benefits for executives now account for a significant share of pension obligations in the U.S., an average of 8 percent at the companies above. Sometimes a company's obligation for a single executive's pension approaches $100 million. These liabilities are largely hidden, because corporations don't distinguish them from overall pension obligations in their federal financial filings.     

"As a result, the savings that companies make by curtailing pensions for regular retirees – which have totaled billions of dollars in recent years – can mask a rising cost of benefits for executives.

"Executive pensions, even when they won't be paid till years from now, drag down earnings today. And they do so in a way that's disproportionate to their size, because they aren't funded with dedicated assets."

The new pension laws passed by Congress won't have any effect on executive pensions – they only affect workers' pensions. This despite the fact that the main drag on companies' pension funds has been the huge growth of pay-outs to top executives. At BellSouth Corp., one of the largest telecom companies, pension obligations to workers since 2000 have fallen by 3 percent while pension liabilities for executives went up 89 percent. At another telecom company, Comcast Corp., liability for executive pensions totals $469 million while liabilities for all other employees is only $194 million!

Figures like this aren't unique to the telecom industry. The Wall Street Journal also revealed that most compensation committees, which decide pensions, "often aim for a pension that replaces 60 percent to 100 percent of a top executive's compensation. It's 20 percent to 35 percent for lower-levelemployees." After all, with CEO salaries at record levels, why shouldn't their retirement benefits be just as high?

As explained above, in order to fund these exorbitant executive retirement packages, workers' pensions have to be slashed. This is the real reason pension funds are in crisis in every large company in the U.S. According to its executives, pension obligations are the biggest problem at General Motors, one of the world's biggest corporations. In GM's last annual report, pension costs were called a 'competitive disadvantage'.

In early 2005, GM cancelled pensions for 42,000 workers, saying that the 'legacy costs' (pensions) for these workers couldn't be paid. But the real problem is that GM executives' pensions total $1.4 billion in liabilities. Executive pensions at GM are the problem, not workers' legacy costs.

The new pension laws give corporations the 'go-ahead' to continue to increase the huge disparities between workers' and bosses' pensions. It allows them to steal from the workers' pension funds in order to ensure a cushy retirement for the millionaire executives that have driven many of these companies into the ground. Working people across the board are being forced to work harder and longer for less, while corporate crooks are rewarded and legally allowed to loot our pensions. This is just a part of the "benefits package" offered by capitalism in the 21st century.

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