new york
CNN
—
One of the most bitter issues dividing labor and management in the Boeing strike is the elimination of the union’s previous pension plan in 2014.
The dispute is reminiscent of past labor disputes at Boeing and other companies, where workers lost what was once a key part of their retirement security: Employers demanded, and won, to shift the risks associated with workers’ retirement from their own profits to the retirees themselves.
Now unions are fighting back, demanding the restoration of traditional pension benefits that their members lost in past concession deals. That’s one of the reasons 33,000 members of the International Association of Machinists walked out on Friday after 95% of union members voted against a tentative labor agreement that would have seen Boeing pay more into union members’ 401(k)s but not restore the traditional pension benefits they lost a decade ago. Restoring pension benefits was an original IAM goal but wasn’t included in the deal that was reached and rejected last week.
John Holden, president of Boeing’s largest union chapter, said shortly after the strike vote Thursday night that it wasn’t about any one issue, but that “I know many of our members are still recovering from the trauma of losing their pension plans.”
But the reality is that traditional pension plans, once a staple of many workers’ retirement plans, have become all too rare in the modern American workplace. And when companies eliminate traditional pension plans and move employees into 401(k)-style retirement accounts, they’re almost always lost forever.
Other unions have sought to restore lost pensions, such as the United Auto Workers, which staged a successful strike at General Motors, Ford and Stellantis last fall, but no U.S. union has yet succeeded in restoring pensions. The auto strike resulted in a deal that gave the union record wage increases and other benefits, but it did not restore pensions for workers hired since 2007.
Employers often argue that employees and retirees would be better off with a 401(k)-type retirement plan if the investments were good. During a UAW strike at three U.S. automakers last fall, Ford CFO John Lawler called the traditional pension plans the unions were seeking “a system of the past.”
The types of retirement plans available to American workers fall into two basic categories. The first are traditional pension plans, called fixed annuity plans, which pay a fixed amount each month to the retiree or his or her survivors until death. The second are individual retirement accounts, such as 401(k) plans, where employers make contributions and typically match a portion of the worker’s own pre-tax contributions. These are called fixed contribution plans. In these cases, retirees can decide how much to withdraw from their account as often as they like, at least until the assets are depleted.
According to data from the Employee Benefit Institute, only about 8% of U.S. corporate workers currently have access to defined-benefit pension plans, down from 39% in 1980. This decline largely coincides with a decline in corporate union membership, which is expected to fall from about 17% in 1983 to 6% by 2023.
Meanwhile, individual retirement accounts such as 401(k) plans have grown from just 19% of corporate employees to 50% today. In fact, nearly all private sector workers who have a traditional pension plan also have some sort of defined contribution plan; far less than 1% have only a traditional pension plan.
Government is one of the few sectors of the economy where pensions are mainstream. Craig Copeland, director of wealth benefits research at EBRI, says about 80% of public employees working at any level of government still have access to traditional pension plans. But even for those who do, the benefits aren’t as generous as they once were, he says.
Boeing’s rank-and-file union members narrowly approved new contract terms in 2014 that would have stripped pensions from everyone hired after the contract was ratified and frozen benefits members had already accumulated in their plans.
The union members did so because Boeing had threatened to build its next-generation 777X jetliner at a non-union factory outside the state that the company said it was considering if the deal didn’t go through. Union members rejected a similar proposal 2-1 last fall, then approved it on a second vote with 51 percent in favor.
Boeing soon moved to eliminate its traditional pension plans for non-union workers as well.
The elimination of the pension plan a decade ago is the main reason why Boeing’s rank-and-file employees almost unanimously rejected the tentative agreement, which would have increased Boeing’s 401(k) contributions by up to $10,800 a year.
“Companies absolutely need to address the issue of retirement security. The proposals that have been put forward fall simply short of what our members expect and want,” IAM international president Brian Bryant said in an interview with CNN on Wednesday.
Bryant didn’t say that simply restoring traditional defined benefit plans would satisfy participants, but added that “there’s no question that you need to show workers the value that’s comparable to defined benefit plans.”
Employers prefer 401(k)-type retirement plans over traditional pensions because they shift risk from the company to the employee. In these pension plans, the company agrees to contribute to the plan, and the contributions are used to buy assets such as stocks and bonds. The contributions and the earnings on those assets are used to pay promised benefits to retirees. If the earnings are good, the company may not need to make additional contributions. But if the value of the plan assets declines, the employer must come up with additional contributions to pay the promised pension benefits.
But with a plan like a 401(k), all of these contributions, payments, and market risk are borne by the individual. If the value of your 401(k) retirement savings and investments declines, you’re the one who loses out, even if you contributed steadily throughout your working life. And while a defined-contribution retirement account allows retirees to outlive their assets, with a defined-benefit plan, the plan is obligated to make payments as long as the beneficiary, or in some cases, the survivor, is alive.
Another advantage of traditional private-sector pension plans is that if the employer goes bankrupt and the plan has no assets to pay benefits, benefits are guaranteed by the Pension Benefit Guaranty Corp. The PBGC is a premium-funded agency similar to the Federal Deposit Insurance Corporation, which insures customers’ bank deposits.
IBM is an example of a company that reopened a closed pension plan last year, but this was not part of labor negotiations; it was the result of an increase in remaining pension plan assets for people who were employed before the plan closed to new members in 2005 and benefits were “frozen” for existing members in 2008.
“As the market went up, there was a huge excess of funds,” Copeland said. “When you take assets out of a defined benefit pension plan, they’re taxed at almost 100% rates, so they have to be used somehow within the pension plan. One way to do that is to reopen the pension plan.”
However, the move was not part of labor negotiations and was a unilateral move by IBM.
“IBM is continually improving the way we support the financial well-being of our employees,” IBM said in a statement when asked about the move.
But at Boeing, the odds are stacked against reopening the pensions, even though there are “Pensions or Bankruptcy” signs on the current picket lines. So even if abolishing the pensions is one of the reasons why 33,000 union members are striking, historically they are more likely to return to work with their demands unmet.
