Protecting pensions is good for G.M., and the country
Once, what was good for General Motors was good for the United States. This week, the chief executive of General Motors — along with his counterparts at Ford and Chrysler — tried to convince Congress that the saying still holds true.
Their pleas for a financial bailout seemed as difficult of a sale as their large-size, low-mileage vehicles. Members of Congress and others pilloried automakers for their failure to innovate and the inability to respond to changing market conditions quickly enough.
Automotive executives certainly are guilty of many failures. But one issue cited by critics deserves closer examination. It is the charge that a contributing factor to American automakers’ financial distress is excessively generous pension benefits for retirees.
Writer Malcolm Gladwell has pointed out in The New Yorker that retirement, health care, disability and unemployment benefits provided to U.S. autoworkers actually are about average for the industrialized nations.
The real issue for U.S. automakers — and steel makers and aircraft manufacturers and other industries — isn’t that benefits are too generous. It’s that there are too many retired people getting them, compared with the number of working men and women left at the companies that provide them.
For all of Detroit’s mistakes and misjudgments, its pension problem is mostly a function of excessive success. America’s automakers have prospered for so many decades that now there are hundreds of thousands of retired autoworkers. But thanks to steady improvements in production efficiency, the industry has far fewer workers now than it did in early 1960s.
When American car companies and the unions representing their workers agreed in 1950 to create retirement pensions for employees, some of the people eligible to receive the new benefit were workers on the brink of retirement. Because the pension system had just been devised, they had paid nothing into it. When these long-time workers retired soon after, it put the companies instantly in the hole in funding their pension obligations.
Each time pensions were renegotiated in a new contract, the hole got deeper. The hope — based on actuarial tables of life expectancy — was that companies would catch up in time and that retirement plans eventually would have the funds they needed to fulfill the promises made to workers. Until then, the difference would have to come from profits earned by those who still were working.
In 1962, G.M employed 460,000 American workers, and it was providing retirement benefits to about 40,000 former employees. By 2005, G.M. had about 140,000 employees in this country, but it was paying benefits to 450,000 retirees. Those numbers simply cannot be sustained.
Almost six decades ago, management theorist Peter Drucker wrote that pension benefits offered by individual companies amount to long-term bets on the financial security of each single business. “Is there any one company or any industry whose future can be predicted with certainty for even 10 years ahead?” he asked.
As former workers at G.M., Bethlehem Steel, American Airlines and numerous others can attest, the answer is no.
In most other developed countries, governments provide pension benefits directly to retired workers, using money collected from private businesses. So instead of betting their future security on the fate of one company or even one industry, workers are betting on their country’s economies as a whole. The approach creates the largest possible pool and, therefore, the smallest possible risk. In the long term, that’s a more sensible solution to the pension crisis that’s still roiling American corporations.
Companies shouldn’t be penalized because they’ve been successful enough to stay in business for a long time. A national pension system would allow them to remain competitive. It also would protect the interests of the retired workers whose skill and dedication helped make that success a reality.
Nationalized Pension Program? Can you say socialism? This is the most ridiculous, insanely stupid thing I have heard in a long time. It is time for workers to be responsible for their own retirement. We all know that we cannot count on Social Security. Pensions are a dinosaur. With companies struggling, they are vulnerable. Workers need to save for retirement themselves. That is the adult thing to do.
This sense of entitlement has to stop.
Perplexing, but a problem that will diminish over time as few companies offer pensions anymore. The question is who manages the fund? Look at the “smartest” people in St. Louis at Wash U. Their trust is down 25%. Annuities? Insurance companies are lining up for bailouts. My mom receivs a very small pension and social security. My mother-in-law receives only social security. I have to subsidize them, as they subsidized their parents. Its like a friend told me recently. “Never outlive your support system.” I have a 93 year old aunt who has done that. No family and no pension. I also have to help her get by. Its kind of a reverse inheritance system.The governmental pension systems will be next. The city announced today its fund is way down. That tin can in the back yard strategy is looking better every day.
So, evidently the editorial board’s theory is that government can circumvent mathematics where the private sector could not. Just float some more treasury bills and let later generations worry about the debt and interest. That worked really well for financing the Great Society, didn’t it?
Will your government plan include a $100 thousand motor home and six months in Florida or Texas for all retirees? Health care won’t be an issue since the shrinking pool of actual taxpayers will be providing that for the entire one third billion U.S. population including illegal invaders.
What a plan……. Who says you can’t get something for nothing? Certainly not the Post Dispatch.
A national pension system? Aren’t those code words for Social Security? And isn’t it going bankrupt? Let’s see… Put my pension in the hands of a private company or let the government take control of it. I’ll take my chances with the private company.
Hey, Did anyone hear about those evil auto executives showing up in Washington in private jets asking for money?
But did anyone hear how those great paragons of society, the UAW execs showed up? That’s right, in private jets.
So Arnold Schwarzenegger is in DC as well asking us to bail out California. Their pension programs are dragging them down and making them insolvent. We need to let them and every other state, county and municipal government file for bankruptcy as well so they can shed the pension programs that are robbing people of their property. At least some of the people in the auto industry at least made something with some value — that is a lot more than any government employee can say.
jmas, Social Security is a social insurance program like unemployment insurance, not a pension system.
A bit of background for others who may not know: When companies go bankrupt or liquidate, their workers’ pensions are already administered and protected by the federal Pension Benefits Guaranty Corporation. It makes those payments with money collected via insurance premiums paid by large corporations that provide pensions to their workers. The PBGC currently insures the pensions of 44 million Americans. You can find out more about it here:
http://www.pbgc.gov/media/key-resources-for-the-press/content/page13542.html
First, Social Security was a p0nzi scheme. If government wasn’t running it, and a private company was running it, they would be imprisoned. When the first vestiges of sub-prime loans raised it’s ugly head, I divested myself of most everything in this country, and invested out of country. I have prospered beyond my belief.
I am Shawnee Indian, and I know how to barter, but I surely would hate to barter in this country 5 years down the road. Most people will have nothing left to barter. I have no need for beads.
If one has a nest egg to protect..consider The Cayman Islands. Want a growth stock, Try Cheri Automotive in China. or Trans Canada Pipelines. in Canada. Both are great!
If you insist in buying stock in this country, buy stock in a beer company. Beer companies prosper with unemploynent. Instead of going to work people sit home and drink beer. Fact.
Make your choices and live with them. I’m happy to live with mine….all the way to the banks in China, Canada, Australia, New Zealand, and Japan.
“…Social Security is a social insurance program like unemployment insurance, not a pension system…”
Mr. Carlton, can you also provide some “background” on the fluid definitions of Social Security? It was once called a trust fund. When convenient it is called insurance. When granting income tax refunds to those who pay no income tax it is an offsetting “payroll tax.” In reality, it seems to be just another underfunded liability for future taxpayers.
If, as you say, it is insurance, I’m having trouble finding the section of the U.S. Constitution that authorizes the U.S. government to be in business selling insurance.
Mr. Carlton, You can change the wording around all you want, I still see no difference in a national pension system and social security. The goverment takes your money, then gives it back to you in increments at a time they see fit, that is, if you live long enough.
When Carl Icahn forced TWA into bankruptcy and raided it’s workers pension plans, I didn’t see the citizens of the U.S. think it important to preserve their pensions thru the federal government. Instead, the PBGC took over what reduced funds were left in the plans, and paid them out. No cost to the federal government! The workers had to accept an amount that was half what it should be. Why can’t the UAW accept the same thing?