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Pension crisis—another corporate swindle

Published Jul 18, 2006 9:23 PM

You walk into your bank to withdraw cash. The teller says: “You have nothing in your account.” You thought you had money in there. But you don’t. The bank took your money to invest or to pay debts. Or they just wanted it for themselves. That’s what is happening to millions of workers who won pensions (deferred wages), sometimes in contract negotiations, many times through hard struggle on the picket lines and hard times on strikes.

Giant corporations—United Airlines, US Airways, Bethlehem Steel, Northwest, Delta, Delphi—and hundreds of other companies have declared bankruptcy and defaulted on pension benefits won under legal and binding contracts. Millionaires who became billionaires—and of course enjoy fully funded pensions and health care in addition to their exorbitant salaries, obscene bonuses and stock options—are robbing the workers.

A headline on the cover of the Oct. 31, 2005, Time magazine read: “The Great Retirement Ripoff.” Subheads said: “Millions of Americans who think they will retire with benefits are in for a nasty surprise. How corporations are picking people’s pockets with the help of Congress.”

The Time article was a major exposé that related heartbreaking stories of workers and retirees who lost their pensions. “From 2001 to 2004,” it said, “nearly 200 corporations in the Fortune 1000 killed or froze their defined-benefit plans and since 1985 over 5 million workers are no longer covered in the private sector.”

The pension crisis is crystallized in a graph—“Pensions in Peril”—showing that since 1985 the number of company-sponsored pension plans has dropped from 112,200 to 29,700. As of 2004 company plans were underfunded by a total of over $450 billion, with the amount steadily climbing. When multi-employer pension funds are added, the figure rises to over $600 billion. For the public sector, employee pension funds in the U.S. are short $700 billion.

The capitalist government was supposed to guarantee these benefits, which were won by the blood and sweat of workers who created the value and profits of the giant corporations. In 1974, following corporate abuses of workers’ pensions in the 1960s and 1970s, Congress passed the Employee Retirement Income Security Act (ERISA). Coupled with the formation of the Pension Benefit Guaranty Corp. (PBGC), a quasi-governmental agency, ERISA was supposed to provide oversight as well as assurance to the millions of diverse workers here that their retirement pensions would be secure.

President Gerald Ford, who signed the legislation on Labor Day 1974, promised, “This legislation will alleviate the fears and the anxiety of people who are on the production lines or in the mines or elsewhere, in that they now know that their investment in private pension funds will be better protected.”

However, Congress wrote ERISA so broadly that, during the 1980s, top management was able to dip into pension funds and remove the equity set aside for the workers’ retirement. This was a bonanza for corporate raiders, speculators and Wall Street conglomerates, which were able to skim millions and billions from pension funds to buy up distressed corporations. Even though Congress has imposed an excise tax on money removed from the pensions and rewritten some of the rules, this was a slap on the wrist. The ripoff goes on.

After three decades under ERISA, pension plans that companies are dumping are so short of assets that the financial status of the PBGC, the body responsible for protecting the pensions, is rapidly deteriorating. In 2000, the agency operated with a $10 billion surplus. By 2004, this became a $23 billion deficit. By the end of this year, the shortfall could top $30 billion.

According to PBGC Executive Director Bradley D. Belt, who recently announced his resignation, “The agency has on record 350 active bankruptcy cases.” Belt told Congress, which is currently discussing ERISA, “37 have underfunding claims of $100 million or more, including six in excess of $500 million.”

In reality, the deficits are worse than the public data suggests. The Government Accountability Office stated earlier this year: “PBGC’s accumulated deficit is too big, and plans simply do not have enough money in the system to back up the long-term promises many employers have made to their workers.”

A Wall Street Journal editorial on June 27, headlined “Pension Crash Landing,” criticized Congress, whose House and Senate conferees are “busy negotiating another pension fix.” This mouthpiece of finance capital—no friend of labor—is warning the government: “On present trends, this could become a fiasco on the order of the saving and loans collapse.”

They were referring to the bailout—which cost tens of billions in taxpayers’ and workers’ money—in the 1980s and 1990s when another government insurer, the Federal Savings and Loan Insurance Corporation, went belly up during a real estate crisis. Whether the government will pick up the tab if the PBGC collapses remains to be seen. Without a broad-based struggle, pensions could go the way of the dinosaur.

Whipsawing to break up unity

The center of a potential class struggle is emerging in the auto industry.

On Oct. 8, 1995, Delphi, the largest auto supplier in the U.S., filed for bankruptcy protection with an $11-billion pension shortfall. In 1999, General Motors spun off Delphi, its main supplier. The shortage in GM’s own pension fund is estimated by the PBGC at a whopping $31 billion.

Ford Motor Co. has a $12.3 billion pension deficit. Daimler-Chrysler is pitting local unions against each other to achieve deep concessions.

The Big Three and Delphi have plans to shut down or sell plants to restructure their corporations, lay off thousands of workers, downsize wages and benefits, and hire temporary workers. Delphi is demanding a wage cut from $27 to $12 an hour for the remaining unionized workers. These transnational corporations are whipsawing the union workforce and girding for a showdown in 2007 when the contract with the United Auto Workers, the primary union, expires.

Recently General Motors announced the results of a massive buyout plan that included Delphi. Of 131,000 workers at GM and Delphi who were offered them, approximately 35,000 accepted some sort of buyout. Of those, around two thirds were GM workers.

Corporate strategy was to divide the retirees from the active production-line workforce. The buyouts were a way to weaken the resolve expressed by the Delphi workers when they voted by over 95 percent to authorize a strike.

Divide to conquer will be met with resistance. Retirees have a major stake in the outcome of 2007 contract negotiations: enforcing the pension promises that GM made in the buyouts. They are rightfully concerned and they will join production line workers to turn the pension crisis into a general struggle.

There are rank and file groups coming together to take on these monumental challenges. Soldiers of Solidarity is one that has a splendid record in the formative stage of this epic crisis. Their name is an eloquent expression of what is needed: an army of workers prepared to do battle in independent, class-wide solidarity with workers, organized and unorganized, and their communities across the spectrum of the pension crisis, which at its roots is a capitalist crisis. The empire of high finance is counting on never-ending war to solve these problems, further aggravating, not alleviating, the many crises here.

It was rank and file auto workers who seized the General Motors empire in the late 1930s. The UAW was born out of the Flint sit-ins. The organized resistance began with the few and grew into an army of the many. Are we in for a rerun?