Workers' Pensions Under Attack

January 17, 2007

I.B.M. began the new year by announcing that it will replace its current employee pension plan - based on defined benefits - with a 401K plan.

I.B.M. funds the country's third largest private pension plan, covering 117,000 employees and 125,000 retirees. Under the current defined benefit plan, IBM workers, at retirement age, are guaranteed a fixed monthly income for life, based on years of service and earnings. Beginning in 2008, IBM will stop funding this defined benefit plan and only offer employees a 401K plan, funded jointly by company and employee contributions. Under the 401k plan, workers only receive a lump-sum on retirement instead of a guaranteed monthly pension. As a result of the change, IBM expects to cut its pension obligations by several billion dollars over the next few years while future retirees will receive substantially lower pensions.

In switching from a defined benefit plan to a defined contribution plan, IBM is following a nationwide trend. Within the last year, for example, such giant companies as Verizon, Hewlett-Packard, Motorola, and Sears have made similar changes.

In fact, today less 19% of the active workforce have defined benefit pension plans; in the late '70's nearly 2/3rd of the workforce had such guaranteed pensions. It is estimated that the shift from defined benefit to defined contribution plans has resulted in a 50% cut in pensions. What is more, nearly all defined contribution plans demand employee contributions, with the company usually doing no more than matching the employee's contribution.

Many large companies are also stealing workers' pensions by defaulting on their obligations altogether. For example, last year, several major airlines, including United (134,000 workers), Delta (65,000 full-time workers), and Northwest (35,000 workers) defaulted on their pensions. So too, Delphi, the large auto parts manufacturer which employs 33,000 workers, went to bankruptcy court seeking to default on its pension obligations. In the case of United, the Association of Flight Attendants estimates that 70% of its membership will lose more than 50% of their pensions.

Altogether, the pension funds sponsored by private corporations, and covering 44 million workers, are underfunded by more than $300 billion, putting the pensions of millions at immediate risk.

The underfunding of these pension plans is a result of outright theft by the capitalists. For years, the capitalists refused to pay as much into these funds as was required by their legal obligations. By using creative accounting and temporary increases in stock prices, the capitalists frequently raided the pension funds, claiming they were "overfunded" and withdrawing monies to distribute as profits for stockholders. Today, as these thefts come home to roost, the capitalists are simply turning to bankruptcy courts and the government's Pension Benefit Guarantee Corporation to declare themselves in default. The courts and government, in turn, are legalizing this robbery, allowing the companies to renege on workers' pensions.

By defaulting on pensions, the capitalists are robbing the workers of wages they have already earned. Over the years, workers and their unions frequently accepted increased pensions instead of immediate increases in take-home pay. But instead of setting these wages aside and guarantying workers' pensions, the capitalists converted these funds into new sources of superprofits. Today the workers are robbed of their retirement years - of their very lives.

Public Sector

The recent struggle of New York City transit workers brought into public focus, governmental attacks on the pensions of public sector workers. Even though the workers were able to beat back the Transit Authority's attempt to slash pensions, government officials, in New York and throughout the country, declared that they will continue to push the issue.

In Illinois the 2006 budget imposed several cuts on the pensions of state workers as well as public school teachers and employees of state universities and community colleges. These changes included increasing teachers' contributions for early retirement benefits and various limitations on the size of pensions. In addition, a special Governor's Commission continues to look into new ways to cut pensions. Several other states, including Florida, Colorado, South Carolina, Arizona, Ohio and Montana are taking steps to shift from defined benefit plans to defined contribution plans. Michigan and Alaska are excluding some new employees from pension plans. Retiree health benefits are also under attack in many states. Across the country, many government officials and capitalist "think-tanks" are calling for ending pensions for all new public employees.

Once again, the problem is arising because state and local governments have deliberately and illegally underfunded their pension plans for decades. Illinois, for example, has fallen $35 billion in arrears over the last 30 years; New Jersey's pension plan is underfunded by $25 billion, etc. Nationally, state and local pension plans are underfunded by some $460 billion. Mimicking the private capitalists, the governments are saying that since they already stole the workers monies, this robbery must be legalized by slashing pensions.

Secure, guaranteed pensions are vital to the well-being and longevity of the retired workers who generally cannot make ends meet on Social Security alone.

Today, the average Social Security check is $955/month for individuals and $1,574/month for couples. These meager checks account for 80% of the income for 2/3 of recipients (about 22 million retired workers). In other words, single retired workers are living on less than $1,200/month while retired couples average less than $2,000/month.

Out of these meager checks seniors pay, on average, several hundred dollars/month in medical expenses alone. This is because Medicare pays less than 50% of average medical expenses and employers keep eliminating or slashing retiree health insurance.

The economic conditions facing senior citizens is a national disgrace - tens of millions live in poverty and the future looks even bleaker for current workers.

The people must face up to this grave and worsening situation. We must not only wage repeated struggles to defend and extend pension plans. We must develop a nationwide political struggle to force the capitalists and the government to recognize the inviolable right of workers, who have given a lifetime of labor to society, to a secure economic retirement. Only a society which guarantees this right can be considered modern and humane.