Retirement Heist: A review

A plan by a group of Houston millionaires to eliminate traditional pension benefits for Texas’ public employees has begun to take shape. The Texas State Employees Union recently broadcast an outline of a proposal from an anti-public service policy organization for eliminating pensions for local and state government employees, public school teachers and other staff, and public higher education employees.

The proposal from the Texas Public Policy Foundation (TPPF) puts on paper the ideas expressed by Houston financier Bill King, who the Austin American-Statesman reported plans a public relations campaign to eliminate public pensions in Texas. The report said that King and his millionaire friends would finance the campaign.

The TPPF proposal takes a path similar to the one that corporations took to undermine traditional pensions and retirement security for millions of workers in the private sector. Ellen Schultz maps this path in a book entitled Retirement Heist: How Companies Plunder and Profit from the Nest Egg of American Workers.

In Retirement Heist, Schultz, an investigative reporter for the Wall Street Journal, who has covered the pension crisis for more than a decade, describes strategies that corporate executives, financial firms, and various consultants used to loot the pension plans of their workers, which in most cases resulted in the demise of traditional defined benefit pensions.

TPPF proposes freezing pension benefits for public sector employees who are already vested in their pension, which, according to Schultz, was often the first step that corporations took toward eliminating traditional defined benefit pensions.

For example, IBM froze its pension benefits for older workers in 1991. During the decade that followed IBM extended the freeze and implemented a number of gimmicks that reduced benefits. By the end of the decade, Big Blue had transferred more than $200 million from retiree pensions to the corporate treasury. When IBM had done all that it could legally do to plunder workers’ traditional pension, it eliminated it altogether.

TPPF also proposes diverting new hires and employees with less than five years of public service away from traditional pensions and into 401(k)-type savings plans. The rationale for doing so, according to King is to reduce the financial burden of paying pensions to future retirees.

Shultz said that corporations like GE used a similar rationale. GE said that it was eliminating traditional pension benefits for new hires because pension payments were a drag on profits; however, when GE CEO JeffImmelt made this statement, GE’s pension plan was over funded and the corporation hadn’t contributed anything to it since the 1980s.

But by diverting new hires away from the traditional pension and into 401(k)-type savings accounts, GE was able, thanks to new accounting standards, to record paper profits that enhanced the company’s bottom line and produced nice bonuses for its top executives.

Those diverted into 401(k)-type plans, however, face a less than secure future. As Schultz puts it, the plans have “already proven to be failures for young and lower paid workers.” They aren’t such a good deal for middle-income workers. The Employees Benefit Research Institute estimates that 33 percent of workers with annual salaries in the range of $30,000 to $70,000 a year and only a 401(k)-type savings plan for retirement will run out of money within ten years of retirement.

This lack of security led the states of West Virgina and Nebraska to return to traditional pensions after experimenting with 401(k) type plans for their public sector workers.

The hardest thing about reading Schultz’s book is reading the stories of people who became the victims of the retirement heist. Some companies raided their pension fund by declaring bankruptcy and turning their pension obligation over to the Pension Benefit Guaranty Corporation of the federal government. When Delta Airlines declared bankruptcy in 2005 and divested itself of its pension plan, retired pilot Dennis Waldron saw his pension reduced from $1,939 a month to $95 a month.

Schultz’s book is full of examples about how corporations with the help of financial firms and consultants set about to deliberately undermine traditional pensions by exaggerating their cost and covering up the impact that their so-called pension reforms would have on people’s lives. They succeeded, and it appears that their success has inspired those with an anti-public service agenda to do the same to public sector pensions.

One thought on “Retirement Heist: A review

  1. Pingback: RETIREMENT HEIST: A REVIEW | New Deal Progressives

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