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New York
CNN
—
One of the most painful issues dividing labor and management in the
strike at Boeing is the loss of the traditional pension plan for union
members in 2014.

The dispute has echoes of past labor disputes at Boeing, and at other companies, where workers have lost what used to be a key part of their retirement security. Employers have made, and won, demands to shift the
risks associated with their workers’ retirements from their own bottom
lines, to the retirees themselves.

Now unions are pushing back, demanding the return of traditional pension
plans their members lost in past concession deals. That’s one of the
reasons 33,000 members of the International Association of Machinists
went on strike Friday after 95% voted against the tentative labor deal
that would have increased the money Boeing paid into their 401(k) but
would not have restored the traditional pension plan they lost 10 years
ago. Restoring pension plans was an initially stated goal of the IAM,
but they were not in the deal reached and rejected last week.

Jon Holden, the president of the largest union local at Boeing, said
right after the vote to go on strike Thursday night that it wasn’t any
one issue, but that “I know that many members haven’t healed from that wound” of losing the pension plans.

But the fact is that the traditional pension plans, once a staple of the retirement of many workers, have become exceedingly rare in the modern
American workplace. And once a company drops traditional pensions plans
to shift employees to a 401(k) type of retirement account, they are
almost always gone for good.

While other unions have also sought to have lost pension plans restored,
as the United Auto Workers union did during its successful strike at
General Motors, Ford and Stellantis last fall, no American union has
ever succeeded in bringing them back. Even though the auto strike
produced a deal with record pay raises and other gains for the UAW, it
did not restore pension plans to workers hired since 2007.

Employers frequently argue that employees and retirees can be better off
with a 401(k) type of retirement plan, especially if their investments
do well. During the UAW strike at the three unionized American
automakers last fall, Ford CFO John Lawler called the traditional
pension plans being sought by the union “a plan of the past.”

Pension plans vs 401(k)’s
The types of retirement plan available for American workers basically
fall into two categories. First, a traditional pension plan that pays
retirees, or their survivors, a fixed amount of money every month until
they die, known as a defined benefit plan. The other is an individual retirement account, such as a 401(k) plan, in which the employer makes contributions, typically matching a portion of a worker’s own pre-tax contributions to the accounts. Those are known as defined contribution
plans. In that case, retirees can decide about the amount withdrawn from
the account, as frequently as they want — at least until they run out of assets.

Defined benefit plans are only available to about 8% of workers at US businesses today, according to data from the Employee Benefit Research Institute, down from 39% in 1980. The decline has greatly mirrored the
decline in union membership at businesses, from about 17% in 1983 to 6%
in 2023.

Meanwhile, individual retirement accounts such as 401(k) plans have
risen from only 19% of business employees to 50% today. In fact almost
all private sector workers covered under traditional pension plans also
have access to some kind of defined contribution plan as well. Far less
than 1% have only a traditional pension plan.

One of the few remaining sectors of the economy where pensions dominate
is government work. Traditional pension plans are still available for
about 80% of public sector workers who work at some level of government,
said Craig Copeland, director of wealth benefits research at EBRI. But
even in those cases, the pension benefits aren’t as good as they used to
be, he said.

Rank-and-file union membership at Boeing only narrowly approved new
contract terms in 2014 that took away pensions for anyone hired after
the contract ratification and froze benefits that members had already
accrued in the plan.

They did so because Boeing had threatened to build its next jet, the
777X, at an out-of-state nonunion plant it said it was considering, if
the deal was not passed. The members voted 2-to-1 to reject a similar
offer the previous fall, then approved the offer in a second vote by
with only 51% voting in favor.

Boeing soon moved to end traditional pensions for its nonunion workers
as well.

The loss of that pension plan 10 years ago is a major reason
rank-and-file members at Boeing nearly unanimously rejected the
tentative agreement put on the table this time, even with the company
offering to increase its contributions to the 401(k) plans by up to
$10,800 a year.

“The company absolutely needs to address the issue of retirement
security. The offer on the table didn’t go anywhere near what our
members expect and demand,” said Brian Bryant, the international
president of the IAM, in an interview Wednesday with CNN.

Bryant stopped short of saying that only a return of the traditional
defined benefit pension plan would satisfy members though, although he
added, “They’re definitely going to have to show something of the same value to workers as the defined benefit plans.”

Why traditional pensions are now so rare
Employers prefer 401(k) types of retirement plans, rather than the
traditional pensions because it shifts the risks from the company to the workers. Under those pension plans the company agrees to make
contributions into the plans, and those contributions are used to buy
assets such as stocks and bonds. The contributions and the return on
those assets are used to pay the benefits that are promised to the
retirees. If returns are good, a company might not need to make
additional contributions. But if plan assets lose value, the employer
needs to come up with the additional contribution to pay the promised
pension benefit.

But in plans such as a 401(k), those contributions, and the pay-outs,
and the risk of the market, are entirely on the individual. If the value
of retirement savings and investments in a 401(k) fall in value, the
worker is the one who loses out, even if they’ve made steady
contributions throughout their working life. Also, a retiree can outlive
their assets in a defined contribution retirement account, whereas under
a defined benefit plan, the plan has an obligation to pay only as long
as the recipient, or a survivor in some cases, keeps living.

One other advantage of traditional pension plans in the private sector
is that if the employer goes bankrupt and the plan doesn’t have the
assets to pay benefits, the benefits are guaranteed by the Pension
Benefit Guaranty Corp. The PBGC is a premium-supported agency similar to
the Federal Deposit Insurance Corp., which backs bank deposits for
customers.

The one example of a company that reopened a closed pension plan was IBM
last year, but that wasn’t part of a labor negotiation. Instead, it was
the result of a growth of assets in the pension plan that still existed
for those hired before the plan closed to new participants in 2005 and
had its benefits “frozen” for existing participants in 2008.

“With the market going up, it became greatly overfunded,” said Copeland. “If you take the assets of a defined benefit plant, it’s almost taxed at almost a 100% rate. So, you have to somehow use it within the plan. One
way they could do it is by reopening the plan.”

But that move wasn’t part of a labor negotiations. Instead, it was a unilateral move by IBM.

“IBM is continually making improvements to how we support employee
financial wellbeing,” said IBM in a statement when asked about the move.

But the deck is stacked against that kind of reopening of a pension plan
at Boeing, even with “pension or bust” signs on the current picket
lines. So even if the loss of the pension plan is one of the reasons for
33,000 union members being on strike, history says they’ll likely return
to work without getting that demand satisfied.

https://www.cnn.com/2024/09/22/business/boeing-strike-pensions/index.html

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