Companies Break Pension Promises

Bob Patrician, CWA Research Economist

Today, a growing number of corporations are walking away from their promises and obligations to fund workers' retirement security. Currently, just 25 percent of American workers will receive a traditional pension when they retire, and that number is shrinking fast, as companies shift the risk and cost of retirement to workers.

Not so long ago, major corporations like Verizon and IBM were using pension assets earned from their defined benefit plans to boost corporate bottom lines and to calculate big bonuses for executives. IBM, for example, was able to boost its bottom line by $4 billion due to pension income from 2000 to 2002.

Now, defined contribution plans like 401(k)s are fast replacing traditional defined benefit pensions at both struggling and healthy companies.

For working families, a pension plan is a vehicle for collective savings. We long ago chose to accept lower wages in bargaining in exchange for the secure promise that these dollars would be set aside to pay benefits in retirement.

By combining the deferred wages of millions of workers, pension funds have been invested in many beneficial ways for our nation — housing, commercial development, state and local bonds — in addition to investments in publicly traded companies nationwide. The return on those investments has helped secure the funds and pay our benefits.

What's changed? Many companies no longer want to keep their commitment to workers' retirement security. They've forgotten that the dollars invested in the pension funds are workers' deferred wages. They gladly seek to shift all the risk and responsibility for retirement savings to employees.

In 2001, 638 of the top 1,000 companies had defined benefit pension plans, and just 5 percent of those — 34 — were frozen to new entrants. By September 2005, 82 plans were frozen to new employees and the number of companies with traditional plans dropped to 627. (Source: Business Week and Watson Wyatt Worldwide).

Some companies — in airlines, steel and auto, for example — have been hit by financial declines and have moved to terminate their plans and shift their obligations to the taxpayers through the Pension Benefit Guarantee Corp (PBGC). Companies come out of the bankruptcy process with new investors and free from the promises made to employees. But working families often lose their retirement security, with many able to collect only half of the value of their pensions from the PBGC.

Watson Wyatt also sees a "herd mentality" of profitable companies with extremely well funded plans moving away from traditional pension coverage.

CWA is closely monitoring legislation to safeguard members' retirement security and ensure that companies pay their fair share. This includes better funding for the PBGC, accountability for employers and real retirement security for working families.