It’s about time you faced some increasingly obvious facts. Your own corporation is stealing your retirement income. Corporations are freezing defined benefit plans, shutting down others, converting some to defined contribution plans and drastically capping the amount retirees receive in health care benefits.
It is happening now under the guise of increased costs, but it is, more often than not, a lie. With 79 million Americans, 10,000 every day turning 65, the heart of the Baby Boom generation will feel the impact of this corporate theft very soon and very dramatically.
The very uncomfortable fact is that, at the same time that workers’ retirement pay is being cut, senior executive pay is being increased using these same funds that are being cut from retirees. In one instance, Lucent, the former Western Electric arm of AT&T, reduced retiree benefits by $400 million because, they said, the company was in dire straights. The same year, however, they gave out executive bonuses of $400 million, almost the exact amount of the retirement pay reductions.
For many years pensions were run with various states of efficiency and ethics. But in 1974, the government decided to take action. Pension funds finally came under federal regulation. No more taking employee retirement funds to use for other purposes. Something called the Employee Retirement Income Security Act, (ERISA) came into being. ERISA stipulates certain matters concerning employee pensions and how they must be handled. The question is….how is that legislation being manipulated to allow corporations to spend retirement funds for other purposes.
By the early 1990s, ERISA was doing pretty well. Employee retirement funds had surpluses for a variety of reasons of over $250 billion dollars. This was too much of a temptation for a lot of the CEOs to resist. The people on Wall Street began to make suggestions to corporations on ways that these large amounts of money could be turned to their advantage. And that is exactly what has happened.
In the 1990s we saw the gradual breakdown in protection for the retirement funds for retired workers, chipping away at health care benefits and death benefits. After the Lehman bankruptcy and the subsequent crash of the Stock Market from 11,000 down to 6,900, and the loss of trillions, about 40% of the net worth of every single American, plus the loss of 8 million jobs (making the total 14.9 million) we knew that corporations and their financial consultants could no longer be trusted.
This is a big problem. Many people are facing a bleak retirement. Half of all private sector workers have no pensions or retirement savings plan to supplement Social Security and this is growing. The fact is that many employers who sponsored pension plans that offered lifetime retirement incomes have frozen the contributions to those plans, or are replacing them with 401(k) plans. Only about 20% of all workers now have a defined benefit plan. Most 401K plans will not provide adequate income for a comfortable retirement.
Even today, many workers have spent their entire lives with the same company. While many workers for large organizations, probably the majority, are not skilled or degreed, that is, they do not have a certificate of a degree from a university nor are they a certified electrician or some other skill, they have become quite skilled in the occupation or perhaps several different occupations that they have learned while on the job.
So, many of these workers retired after 30 or 40 years with a retirement income, which is basically deferred income. It is income that they chose to put aside into a retirement fund for their old age. Included with that, approximately 40 years ago, were life insurance and health insurance benefits. And they were important. But in the early 1990s retired workers began to notice something.
The companies began to complain that the retirement benefits were becoming a burden. Some companies maintained that they simply could not continue to provide the same benefits. So, one of the ways companies handle this is to freeze benefits. There are all kinds of benefit freezes. But the basic situation is that the company freezes the benefits at this year’s level. So if you have been with the company for ten years and you work for them for another ten years and the benefits stay frozen, you will get your income, multiplied by a percentage times ten, instead of twenty, to calculate your retirement.
Another method is the switch to a defined contribution plan, a 401K plan, which is a far less desirable form of retirement fund. Usually the first phase is the freeze and then some formula for transfer of the funds into a 401K plan. At that point the employee is responsible for the plan, usually under funded. The simple fact is that as often as not, there is not reason other than creating more profits for the change in the pension benefits.
But the pensions themselves are not the only thing that the corporations are cutting. Health care benefits are a great way for corporations to reduce their liability for former workers. Many big corporations will tell workers what great health care programs they will have when they are working. But what they don’t say is that they have capped the health care benefits for retirees. So when the health care costs for retired beneficiaries gets to a certain point, they pull the plug.
But if the company does not reach any kind of difficulty with funding health care, why cap the benefits? It’s simple. A limit on retiree benefits becomes greater profits because a liability is reduced and it therefore flips and becomes profit on the spread sheet. In addition, every amount not spent on this becomes more income that can be spent on executive bonuses or better stock performance.
What does it mean for the employee? Take this one example from IBM, which capped its expenditures on retiree health care in 1993. The caps for retirees were set at $3,500. That was not much in 1993, but by 2001, the caps per employee were hit and the costs began to shift to retirees. As a result, health care costs have skyrocketed for the elder retirees and have remained flat for IBM. Some retired IBM employees, have experienced increases of 30 to 60% increases in costs over the years, reducing retirement income by hundreds of dollars a month.
Cutting health care benefits is a basic tool for the CFOs of major corporations. This is how it’s done. International paper, in the late 1990s, had a health care liability of $400 million. By reducing the amount it paid for health care to retirees by $133 million, it could add $18 million on paper to its profitability the next year. The year after that, it added another $18 million, and the third year, a whopping $65 million in paper profit.
This is why it is being done. Not because costs are going up. But because it allows CEOs the opportunity to add to CEO and senior executive salaries and bonuses. It is not good for the relationship between workers and corporations…which is at an all-time low as it is. But it is even worse for the overall condition of the working family in this country who need every opportunity to create enough wealth to live comfortably throughout retirement. It is one more sign of the never ending greed of America’s corporate billionaires.