Pension Fund Is About to Go the Way of Your 401(k)


It’s the holiday season, boom time for pickpockets. We’re busy, we’re distracted and we’re in a mood to think about fellowship, not felonies. Everything’s right for Light-Fingered Louie making his move in Washington. We barely notice until later that we’ve been robbed.

Merry Christmas.

The Bush administration and its pals in the corporate suites are pulling off just such a filch right now. In a truly mean-spirited retreat from the principles of hard work and loyalty, they’re setting up a raid on middle-class pensions.

“Radical. Anti-worker,” fumed Rep. Bernard Sanders (I-Vt.). He calls it another assault by “Enron culture” CEOs whose campaign contributions hold sway in the administration. “It is going to cost employees dearly,” warned his California Democrat colleague Rep. George Miller.


Indeed, the General Accounting Office projected that workers could wind up with reductions of 20% to 50% in the monthly pensions they worked for and planned for.

At stake are the futures of millions of American families and billions of dollars they thought they earned. But unless they are attentive, they might not notice what’s missing for a few years. By then the perpetrators would be lounging at their private yacht clubs and island resorts. Because you can bet that executives are licking their chops this holiday for the chance to inflate their own bonuses by trimming the “expense” of retirement payments for their workforce.

Business executives call their dodge the “cash-balance” pension. It works something like this: They get the cash, and we get the balance.

Hundreds of companies are expected to begin converting their traditional, fixed-benefit retirement plans to these “cash-balance” alternatives as soon as the proposed regulations take effect, after a three-month comment period.

A few years back, the idea of doing away with traditional retirement plans in favor of cash-balance pensions caught on in a big way, and as many as 700 companies imposed the switch on their 8 million or so workers. But they ran into trouble. Employees began to understand what was happening: Older, long-term workers realized that they were the targets. And why not? They were the ones about to retire and put a drain on company profits. They began filing lawsuits and complaints, and the Clinton administration imposed a moratorium on the swindle.

Now the Bush administration has called for an end to the moratorium and, further, is offering corporations a shield against worker challenges.

Proponents of the cash-balance idea would have us believe that it would modernize the pension system for the benefit of younger workers who no longer make a career at a single company. They would be allowed to carry the accumulated cash balance of their pensions from job to job.

In fact, however, employees still must work at a company for five years before vesting, meaning that many highly mobile young people wouldn’t receive any benefit after all. Besides, the logic of business suddenly developing a soft spot for its newest employees is transparently bogus. Why in the world would companies want to favor workers who have proved no loyalty over those who have? Simple: Promising the world to 25-year-olds defers costs into the future. Then, who cares? Someone else would have to worry about quarterly profits, bonuses and devising some new pension “reform” to renege on those obligations.

Right now, it’s the 40- to 55-year-old workers who companies must deal with. And cash-balance pensions as allowed by the Bush administration would do a nasty job of it. First, companies would be given wide latitude in determining the cash value of pensions earned thus far by their long-term workers. Then companies could sharply reduce gains to this value and legally claim that they are not discriminating by age -- even though the intended outcome would only be to reduce benefits for older workers.

Basically, employers would not have to honor their promise to the baby boomer generation. During the switch from one type of plan to another, employers could wriggle out of their commitment to base roughly one-third of worker pensions on wages earned in the first half of employment and two-thirds earned during the second half. That was envisioned as the means to reward loyalty and service. But now at mid-career, when steadfast employees should be earning the most toward their eventual pensions, they could find themselves gaining nothing for years to come, and then no faster than the newest employee on the payroll.

The net effect, depending on how hard-headed companies choose to be, could reduce a $2,000 traditional pension to $1,000 monthly, according to congressional investigators.

Karen Friedman, policy director of the independent Pension Rights Center, says the effect of the regulations would be to force more businesses, even those not inclined to punish their loyal workers, into cash-balance conversions just to keep up with cutthroat competitors. “They are encouraging companies to do the wrong thing.”

There was a time, and it wasn’t so long ago, when conservatives voiced the idea that American values meant keeping faith with those who, as Ronald Reagan put it, “worked hard and played by the rules.” Makes you nostalgic, doesn’t it?