Traditional defined-benefit pensions are rapidly disappearing in the private sector—less than 15 percent of workers have them. Most public sector workers still have them—more than 20 million are either now receiving or looking forward to a pension. However, public sector pensions are coming under attack from the American Legislative Exchange Council (ALEC) and other right-wing groups.
Over the last four decades employers have been anxious to convert the traditional defined-benefit pensions into defined-contribution 401(k) plans.
The difference is that with a defined benefit, the worker is secure while the employer does not know exactly how much it will have to pay in. Workers are guaranteed a lifetime benefit based on their salary and years of service; the employer’s bill depends on the worker’s longevity and on stock market performance.
Butch Lewis Act
In November, Senator Sherrod Brown introduced the Butch Lewis Act, which would provide loans to pension funds in critical or declining status to pay out promised benefits to retirees, funded by new bonds issued by the U.S. Treasury. The bill is named after the late Butch Lewis, a longtime Teamsters for a Democratic Union activist and a leader in the fight to defend Teamster pensions.
Grassroots mobilization and lobbying by retirees over the last three years have been critical to stopping cuts to the Teamsters’ Central States Pension Fund, and to generating the pressure on Congress to come up with a solution for ailing funds.
Retirees are now making a big push for the Butch Lewis Act. In December, 500 Teamster retirees, active members, and spouses packed a union hall in St. Paul, Minnesota, in support of the bill. The rally was sponsored by Save Our Pensions-Minnesota, which is an affiliate of the National United Committee to Protect Pensions, a network of 60 Teamster rank-and-file pension protection committees formed in 2016. – Dan DiMaggio
With a defined-contribution plan, the employer knows just how much it will pay each year, and the worker shoulders all the uncertainty. This means that workers face the risk that the market will plunge just after they retire—and they may quite possibly outlive their savings.
By getting rid of defined-benefit plans, employers are transferring risk to workers. In addition, they often contribute less to a defined-contribution plan than to the defined-benefit plans they replaced, in effect cutting workers’ pay.
PUBLIC PENSIONS UNDERFUNDED?
There has been a huge effort to portray public employee pension plans as both overly generous and hugely underfunded. Neither is true.
In nearly all cases the public plans provide relatively modest benefits. For example, the average benefit for a retired city worker in Detroit was just over $18,000. When the city declared bankruptcy these workers were forced to take a 4.5 percent cut and give up cost-of-living increases. After two decades of missed increases, this concession may cost retirees one-third of their pensions.
In Chicago, where city workers’ pensions are seriously underfunded, the average benefit is a bit over $30,000 a year. Most news accounts fail to mention that these workers are not covered by Social Security, which means that for most this will be pretty much all their retirement income.
For the most part, public sector pensions are reasonably well-funded. Right-wingers have tried to exaggerate the size of the shortfall with accounting gimmicks that make it appear much larger, producing figures as high as $4 trillion for all local and state pension plans.
However, if we assume that the pension funds earn a return consistent with projections of future economic growth, the additional contributions needed from local, state, and federal governments to maintain full solvency would be around 0.25 percent of the U.S. gross domestic product.
This is hardly a trivial sum, but it would not bankrupt the country. By comparison, at the peak, the wars in Afghanistan and Iraq cost 1.6 percent of GDP. Shoring up pensions would require additional tax revenue from state and local governments, assuming that workers do not agree to make larger contributions from their pay, as many have.
These pensions are workers’ deferred pay. They already worked for them. No one suggests retroactively taking back money governments have paid to contractors in earlier years. It doesn’t make any more sense to retroactively cut workers’ pay, which is effectively what pension cuts do.
PRIVATE SECTOR WOES
Most private sector pensions are from single-employer plans, which are generally well-funded. Employers go after them out of greed, not out of necessity.