Home > Uncategorized > The Combination of Disappearing Private Sector Pensions and Prevalent Public Sector Pensions is Opportunity for Resentment… or Reform

The Combination of Disappearing Private Sector Pensions and Prevalent Public Sector Pensions is Opportunity for Resentment… or Reform

I’ve written several posts based on an essay I wrote several years ago titled Broken Covenants. The essay contrasted my brother’s experience at DuPont with that of my father. My father retired from DuPont after working there for over 30 years and received a defined benefit pension and relatively generous health care into retirement, benefits that transferred to my mother upon his passing. My brother, on the other hand, lost his pension and his benefits when DuPont sold off his division to another business and that business, in turn, sold their division to a third corporation.

Today our local newspaper, the Valley News, features a Washington Post article by Peter Whoriskey titled “A Preview of the US Without Pensions” that describes the experiences of McDonell-Douglas employees in Tulsa, Oklahoma… experiences that mirror those of my brother an those of millions of Americans across the nation. Mr. Whoriskey’s article describes how the impact of McDonnell-Douglas’ decision to close a factory in Tulsa Oklahoma impacted the lives of employees who are roughly the age of me and my brother… and it is not a pretty picture. Instead of collecting pensions and health care benefits that, when combined with social security, would provide a comfortable living wage, the employees collected a lump sum of $30,000 after taking McDonell-Douglas to court and prevailing in a lawsuit. Consequently, after researching the current status of the 900+ individuals who were dismissed by the plant closure, Mr. Whoriskey found that most of them were doing part-time low-wage work that under-utilized their talents and undercut their chances to retire. Mr. Whoriskey matter-of-factly described the history of corporations offering pensions and, without calling it such, how the concept of shareholder primacy led to their demise. In Mr. Whoriskey’s brief account, he ascribes the rise of defined benefit pensions to unions and their demise to “corporate raiders”:

The notion of pensions — and the idea that companies should set aside money for retirees — didn’t last long. They really caught on in the mid-20th century, but today, except among government employers, the traditional pension now seems destined to be an artifact of U.S. labor history.

The first ones offered by a private company were those handed out by American Express, back when it was stagecoach delivery service. That was in 1875. The idea didn’t exactly spread like wildfire, but under union pressure in the middle of the last century, many companies adopted a plan. By the 1980s, the trend had profoundly reshaped retirement for Americans, with a large majority of full-time workers at medium and large companies getting traditional pension coverage, according to Bureau of Labor Statistics data.

Then corporate America changed: Union membership waned. Executive boards, under pressure from financial raiders, focused more intently on maximizing stock prices. And Americans lived longer, making a pension much more expensive to provide.

This anodyne description overlooks the fact that those executive boards decided to operate on the premise that growth rates needed to accelerate at ever increasing and arguably unsustainable rates in order to maximize profits. Under this paradigm, employee wages and benefits and the number of employees were each problematic. So when it came time to increase profits, McDonnell-Douglas did what it had to do: it cut the factory with the largest number of high-seniority employees, eliminated their retirement benefits, and moved on. In McDonnell-Douglas’ defense, they were only dong what they needed to do in order to keep their heads above water… and they were not behaving in an unusual fashion. At the same time as they were closing “high cost” factories in Tulsa, paper mills were shuttering across New England, cotton mills were closing across the South, and automobile factories were closing across the nation. And the closures were not limited to unskilled laborers on assembly lines. Technology manufacturers like IBM and the high-skilled precision operations in the Connecticut River Valley closed.

In the meantime, teachers across the nation continued to operate under the rules put in place at the time when corporations routinely offered pensions and relatively generous benefits, in large measure because they unionized in the late 1960s and early 1970s. But now, as displaced workers find themselves without pensions and an increasing number of existing workers find themselves with health benefits that are less generous than those offered by school districts, there is an emerging resentment toward public employees and a belief that they should be subjected to the same “rules” that led to the closure of their factories.

But there might be another solution. Maybe the voters who want to see schools and public services operate like a business might consider having businesses operate more like them. Maybe we should examine the effects of “shareholder primacy” and adopt regulations that would require corporations to provide their employees with pensions and health benefits to their employees. The pensions might be “40 and out” instead of “30 and out”. And the health plans might cover catastrophic illnesses and injuries— the kinds of expenses that lead to personal bankruptcies. If we want to “Make America Great Again” we need to make the American workplace great again… we need to have confidence that at some point workers will be able to retire and will never become bankrupt because of health care costs or their inability to make ends meet. We could outlaw the cause of the conditions described in Mr. Wholiskey’s article if we outlawed corporate raiding, levied high taxes on corporate profits, and mandated the fair and equitable treatment of employees. It wouldn’t be hard to accomplish: we could use the public sector as a template.

 

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