Empty Nest Egg
NYtimes, May 4th, 2008
The future of Americans’ pensions has not become a serious campaign issue so far this election season. It’s hard to get retirement issues to the front of the line when the nation faces soaring health care costs, global warming, $100-a-barrel oil, a likely recession and collapsing housing prices. There is also the little matter of the worst credit crisis since the 1930s.
That is too bad, because, as Roger Lowenstein nicely illustrates in “While America Aged,” the country “is sitting on a retirement time bomb.” He is not talking about Social Security, which, he writes, is among the more manageable of future concerns. He is addressing the large-scale failure of America’s once-enviable private pension system.
Lowenstein is one of the nation’s most talented business writers, with a particular ability to make obscure financial issues clear as the morning light. He tells three disturbing tales.
The first is about General Motors and the United Auto Workers. In the 1950s, the U.A.W., under the redoubtable Walter Reuther, won generous pension and health care benefits from G.M., eventually even securing medical coverage for retirees.
Back then, of course, no one thought the world’s premier manufacturing company would ever lose its pre-eminence. But beginning in the 1970s, market share declined inexorably while retiree rolls expanded dramatically. By the late 1990s, G.M. had 400,000 retirees compared with 180,000 workers.
With stock prices generating high returns on investments in the bullish 1990s, G.M. decided to underfund its obligations. It also perhaps too cleverly spun off its parts operations, and a lot of its pension burden, into a company called Delphi. It didn’t work. Delphi foundered, and the U.A.W. has taken over management of its own health fund, hoping to keep most of the promises made to workers. We shall see.
Lowenstein’s second example is New York City’s public transit system. Over time, the Transport Workers Union won subway workers benefits so generous they could retire by age 55. New York, however, failed to fund its pension benefits adequately, while being buffeted by economic crosswinds itself. The subway workers, despite a 2005 strike, were forced into concessions, but the city still faces huge liabilities.
The final example is the most egregious. San Diego’s municipal workers were also granted generous pension benefits. The city management then deliberately skimped on the annual contributions, hiding the underfunding from the public while the union knowingly looked the other way. The result was near bankruptcy for the once thriving metropolis.
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