Book Review - Plundering Our Pensions

 Retirement Heist: How Companies Plunder and Profit From the
 Nest Eggs of American Workers 
 
 By Ellen E. Schultz
 Portfolio/Penguin 2011 
 216 pages, 
 available in hardcover and  paperback

 UE News August 20, 2012 - Summer 2012 issue

 We already knew that employers are stealing workers'
 pensions, and that they've doing it for more than 20 years.
 But in this well-researched and well-argued book Ellen
 Schultz, an award- winning investigative reporter for The
 Wall Street Journal, documents the complex ways in which
 they've been doing it, how they profit from these crimes,
 and how gaping loopholes in laws and regulations let them
 get away with it.

 Interestingly for UE members, the first corporate leader
 Schultz mentions is Jeffrey Immelt, CEO of General Electric,
 recounting a speech he gave to investors in December 2010.
 Immelt told them that the GE pension "has been a drag for a
 decade," and that to relieve itself of this financial
 burden, GE was going to keep future employees out of the
 pension. But Immelt's presentation was fundamentally untrue,
 says Schultz - the company's pension and retiree plans, huge
 and well-funded, "had contributed billions of dollars to the
 company's bottom line over the past decade and a half", and
 the company had not contributed a cent to the workers'
 pension plan since 1987.

 One of the ways GE made money from the pension fund was by
 selling chunks of it when it spun off a division of the
 company. For example, Schultz writes that when GE sold an
 aerospace unit to Martin Marietta in 1993, it transferred
 30,000 employees and $1.2 billion in pension assets - $531
 million more than was needed to cover the pension
 liabilities. But all that was included in the sale price, so
 "GE effectively got to put half a billion dollars from its
 pension plan into its pocket."

 With case studies involving some of the biggest names in
 corporate America, Schultz describes the elaborate schemes
 by which employers have gutted workers' pension plans and
 retiree health care to finance downsizings, boost corporate
 profits and, in many cases, pay for the obscenely generous
 benefits of top managers and executives.

 She describes how some companies have transformed their
 pensions into "cash-balance plans," presented as a change
 that will benefit employees, when in fact cash-balance plans
 are a way to disguise retroactive pension cuts. A similar
 scheme called the "pension equity plan" also enables
 employers to cut workers' pension benefits; the calculations
 are so complex that most employees don't realize they've
 been fleeced until they're about to retire. These and other
 innovative ways of robbing workers have been developed by
 what she calls "a new breed of benefits consultants" that
 emerged over the past two decades, who specialize in cutting
 retirement benefits for ordinary employees while boosting
 executive compensation.

 The many complicated and sinister schemes to loot retirement
 benefits that Schultz describes can be depressing and mind-
 boggling to follow. She humanizes these stories by
 introducing us to individual retirees who were the victims
 of these plots, who struggled for months or years to even
 grasp what was happening to them. Some of these people
 fought back, in some cases achieving limited success, but
 often failing in a system of "benefits law" which the
 corporations have largely rigged in their own favor.

 The book deals with the looting of pensions in the private,
 corporate sector. But in the final pages she says a few
 words about the developing crisis of public employee pension
 plans. The same consultants and financial firms who
 engineered the pillage of private pensions, she writes, are
 now playing "a non-starring role in the public pension
 debacle." She adds:

 "The scapegoat game continues. Corporate employers are still
 blaming aging workers, rising 'legacy costs' and 'spiraling'
 retiree health care costs for their financial woes - not
 their own actions that squandered billions of dollars in
 pension assets, their thinly-masked desire to convert
 benefits earned by and promised to retirees into profits for
 executives and shareholders, and their willingness to
 sacrifice retiree plans, and the well being of retirees, for
 short-term gains.

 "In the public plan sector, the scapegoats are the public
 employees and retirees, who are beginning to have the
 haunted look of victims of the Salem witch hunts. The real
 culprits are the self-serving politicians and officials who
 passed the funding buck to future generations, the
 consulting firms that helped them do this, and the
 investment banks that conned local governments into
 investing taxpayer-funded pensions into risky, abusive
 investments."

 What's the answer? Schultz calls for tightening laws to stop
 many of the abuses she's uncovered. "Pension law requires
 that the plan be managed for the 'exclusive benefit' of the
 participants," she writes, but the law "is like a toothless
 dog." She wants "laws that make it tougher for companies to
 terminate their pensions to capture the surplus money," and
 tightening of loopholes that enable corporate executives to
 divert the money in pension and retiree health plans.

 While the reforms she proposes would help protect those
 workers and retirees who still have defined benefit pensions
 and retiree healthcare, they could not help the millions who
 have already lost these benefits. Because Schultz's scope is
 limited to the past two or three decades, she does not look
 back to the origins of employer-based pensions, and
 therefore misses the underlying problem.

 Social Security, as originally conceived by members of
 President Franklin Roosevelt's Committee on Economic
 Security in 1934 and '35, was intended to provide full
 retirement security as well as "all forms of social
 insurance" - health insurance, accident insurance,
 unemployment benefits, maternity benefits, etc. To get the
 original Social Security Act through Congress in 1935,
 Roosevelt scaled back these goals (National healthcare was
 left out of the bill, for example, and agricultural and
 domestic workers were excluded, which left out half of the
 African American workforce.) New Dealers planned to broaden
 the concept and coverage of Social Security in later
 amendments. But by the late '30s life insurance companies,
 which devised and marketed pension plans to employers (then
 generally covering only high-paid managerial employees) had
 gained political traction for the idea of "supplementation."
 This was the notion that Social Security should provide only
 a minimal, subsistence retirement benefit, to be
 "supplemented" by employer pensions, savings and other
 income.

 After World War II, with the failure of efforts to expand
 Social Security's coverage of retirement and healthcare,
 unions turned, often reluctantly, to bargaining pensions and
 health insurance with employers. (An excellent history of
 these developments is Jennifer Klein's 2003 book, For All
 These Rights: Business, Labor and the Shaping of America's
 Public-Private Welfare State.)

 The system of employer-based pensions and health insurance
 "supplementing" Social Security was never complete - even in
 the boom years of the 1950s and '60s, huge sections of the
 working class had no pensions or health coverage. In our
 time, we're witnessing the collapse of that system, with
 healthcare becoming unaffordable even with insurance, and
 defined-benefit pensions rapidly disappearing. Retirement
 Heist is a very important indictment of corporate America's
 looting of its workers' retirement funds. It is further
 evidence that we need to return to the vision of 1935:
 Retirement and healthcare are much too important to be
 entrusted to employers, and must instead be guaranteed by
 the federal government as human rights.

___________________________________________

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