In My Opinion: Vanishing Pensions, the Cruelest Betrayal

This past July, IBM Corp. changed its traditional pension benefit plan to a cash balance account plan in a manner that slashed the expected benefits of tens of thousands of mid-career employees by 20 percent to as much as 50 percent.

The action sparked an eruption of outrage throughout IBM's ranks. In the face of a union movement suddenly taking hold among IBM employees, along with charges of age discrimination and rumblings in Congress for new pension protections, IBM backed down in mid- September and allowed many more workers the opportunity to stay with the old pension plan.

But the employees' anger was not diffused. Longtime IBMers who had always felt they were part of a corporate family felt shocked and betrayed that management would even consider sacrificing their retirement security to fatten an already healthy bottom line.

"They broke a bond of trust with the workforce, and that can't be undone," an IBM employee from Raleigh, N.C., said following a recent Senate hearing in Washington that was prompted by IBM's pension shift. "We've lost our innocence now, and we can see there is no sense of loyalty anymore from executives at the top."

And far from blunting the workers' drive to organize, IBM's reversal on the pension issue merely affirmed the power of collective action. "IBM only reacted because we raised hell, and it was clear they did it reluctantly," said another worker who drove down from Endicott, N.Y., for the hearing.

Without union representation and collective bargaining rights, many thousands of workers are losing the retirement security they had counted on as employers restructure or eliminate traditional pension plans.

AT&T workers fortunately had a union when that company first sought to convert to a cash balance account plan in 1992, as I testified at the Senate pension hearing. AT&T had to bargain with CWA, and when we examined the company's proposal, we saw that such a plan would benefit newer workers, giving them cash portability if they left the company, but would penalize longer-term employees. So we rejected the proposal that year.

The cash balance concept changes the basis of the pension benefit from average earnings at the end of a career to average pay over the life of a career. Conversion helps younger workers by front loading the contribution in a cash account, but it takes away the expected bump in pension earnings for older workers nearing retirement eligibility. Mid-career workers can discover that they would have to work longer than they planned in order to receive the old benefit level if they are forced into a new cash balance system.

After negotiations with AT&T in two more rounds of bargaining, CWA finally was able to reach agreement last year on a formula to phase in a cash balance plan in a way that provides the desirable portability feature and yields only pension improvements - with no benefit reductions - for the entire union-represented workforce. Workers with 15 years or more of service as of July 30, 1998, may choose to receive benefits either under the traditional defined benefit plan or the cash balance account - and they can make the choice at the time of retirement so that it is completely clear which is best for them at that stage of life.

CWA also negotiated the conversion of the traditional pension to a cash balance plan at Bell South in a way that only improved, and did not diminish, benefits for all workers. On the other hand, we rejected a cash balance proposal from Bell Atlantic last year because it did not meet our standards for protecting all employees.

Legislation is needed to provide protections for all workers such as CWA has negotiated, and there are several bills being proposed that would help. The reality, however, is that they have slim chance of passage with the present makeup of the House and Senate.

The best guarantee of retirement security, as IBM employees and others are realizing, is the power of union representation and a collective bargaining contract.

In non-union sectors, traditional defined benefit plans are disappearing fast. Coverage under such plans has declined from 38 percent of the private sector workforce down to 23 percent since 1980.

Largely, they are being replaced by 401(k) retirement savings plans to which the employee must contribute, and which are subject to the ups and downs of the financial markets.

The beneficiaries of this trend, of course, are the corporations that are shifting retirement costs to their workers, and Wall Street, which has enjoyed an infusion of $1 trillion in 401(k) stock market investments over the past 15 years.

Now watch carefully to see what these same interests have in mind for "fixing" your Social Security system.