Gov’t, business continue to target pensions

Bill Knight column for Monday, Tuesday or Wednesday, Feb. 5, 6 or 7

Traditional company pensions – the system where employers withhold part of workers’ pay packages to reserve for emloyees’ retirement – are traced to 1875, when American Express (then a delivery service) established pensions for its employees. In the history of labor relations, however, it took decades of organizing for pensions to become relatively common.

Now they’re getting rare.

Today, among working families on the verge of retirement, about a third have no retirement savings of any kind, and another third have total savings that are less than their annual income, according to Nari Rhee of the National Institute on Retirement Security. That means the country faces a “retirement crisis,” according to U.S. Sen. Elizabeth Warren (D-Mass.).

“There have been warning signs for years about what is happening to our middle class,” she said. “The dream of a secure retirement is slowly slipping away. A generation ago, middle-class families retired with strong pensions from their employers. And where pensions, savings and investments fell short, they could rely on Social Security to make up the difference.”         

However, employers, especially corporations, changed. Now it’s typical that short-term profits and maximizing stock prices take precedence over long-term value and good relations with workers, vendors, customers and communities. Plus, organized labor has weathered sustained attacks but is weaker, and Americans’ life expectancies rose – meaning that pension benefits last longer.

Two decades ago, 35 percent of all private-sector workers had traditional, defined-benefit pensions – which guaranteed a certain monthly payment retirees could depend on. Today, that number’s been cut in half – 18 percent of private sector workers have defined benefit pensions, according to Monique Morrissey of the Economic Policy Institute.

“And just as they need to rely more than ever on pensions, employers are withdrawing from their traditional role in helping provide a secure retirement,” Warren said. “Employers have replaced guaranteed retirement income with savings plans, like 401(k) plans, that leave the retiree at the mercy of a market that rises and falls, and, sometimes, at the mercy of dangerous investment products. These plans often fall short of what retirees need, and nearly half of all American workers don’t even have access to those limited plans. This leaves more than 44 million workers without any retirement assistance from their employer.”

The nonpartisan Government Accountability Office in October issued a report that said, “The U.S. retirement system, and the workers and retirees it was designed to help, face major challenges. Traditional pensions have become much less common, and individuals are increasingly responsible for planning and managing their own retirement savings accounts.

“Many households are ill-equipped for this task and have little or no retirement savings,” added the GAO, which recommended Congress create an independent commission to study the U.S. retirement system.

“If no action is taken, a retirement crisis could be looming,” the GAO said.

Meanwhile, Illinois’ Republican Gov. Bruce Rauner – after losing court battles as to the constitutionality of proposed pension reforms – now wants the U.S. Congress to intervene by releasing states from such mandates if they can show that fulfilling the promises would impede other public services. Rauner’s scheme is akin to bankruptcy proceedings, where a financial “reorganization” could be authorized by a court to, for example, change how benefits are calculated or reduce promised benefits.

Illinois’ state constitution says that benefits cannot be “diminished or impaired” once they’re granted to workers, and the courts have upheld that directive. Because a series of governors and legislatures, Democrat and Republican, refused to raise taxes to meet the spending they authorized, and then reneged on making required contributions to pension funds, Illinois’ pension debt is more than $120 billion.

So Rauner wants control of the constitutionally protected state pension system and the promises it’s made for generations of state employees, who worked for government with the understanding that pensions were part of the package. (As Warren has said, “A pension is nothing more than deferred compensation.”)

“We’re unreasonably hamstrung,” Rauner’s argued. “And the federal government can say, ‘No, federal restructuring law supersedes the state restrictions, Congress is freeing up states to restructure their pensions as they need to, as they see fit’.”

Warren said,  “Add all of this up – the dramatic decline in individual savings and the dramatic decline of guaranteed retirement benefits and employer support in return for a lifetime of work – and we’re left with a retirement crisis – a crisis that is as real and as frightening as any policy problem facing the United States.”