In a tentative settlement with the multiple labor unions representing GE workers, General Electric has closed its pension to new hires. The news comes just after the United Mineworkers and the Bituminous Coal Operators Association just reached a settlement with the same condition. According to published reports, new employees at GE and at signatory coal operators will receive instead a modest company contribution toward a personal 401K, or something very similar.
The latest news represents another step in the abandonment of the defined-benefit pension by private sector employers. Defined-benefit pensions guarantee a stable retirement income to employees who have served their employers long and well, and in the 1950s, 1960s and 1970s was a routinely offered employment benefit. In the 1980s this landscape rapidly shifted as employers moved toward individual retirement accounts like 401(k) plans, where the employee was expected to manage a personal account for his or her retirement.
The pension was a good fit for the dominant business model of the postwar era. Blue-chip firms like GM and IBM assumed long-term employment relationships. They competed less by downsizing than by drawing more value out of their existing workforce – by upgrading their skills and improving productivity. Corporations could afford to invest more in worker training and development only if they knew the worker would be around long enough for that investment to pay off. Hence the pension, a benefit that was more valuable the longer one stayed with the company.
Today’s firms don’t want a long relationship with their workers; they want to show stockholders that they are cutting payrolls NOW, not developing human capital for some future decade. Holdouts who tried to preserve the old model became goats in the market, panned as stagnant and inflexible. High labor costs put them at a disadvantage against competitors who declined to offer an expensive pension benefit. IBM began a controversial pullout from the defined benefit pension in 1999; GM shifted new hires into a 401k beginning in 2007.
The disappearance of the pension is a catastrophe for working families whose full effects won’t be felt for years; many of the boomers are retiring with a pension benefit, but few of their successors will. But the past few decades have already shown that personal retirement accounts are no substitute for pensions. Hard-pressed workers are seldom able to put enough into a retirement account for reasonable security in old age. And while a properly funded defined-benefit pension plan can spread risks across decades, an individual retiree needs to cash in when he retires – whether the market is up or down.
While the US Catholic Bishops remind us that “adequate benefits and security in their old age” is among the rights of workers, Catholic Social Teaching on retirement security is not so well developed as that on, say, the living wage or the right to organize. Still, every American should be concerned about the social train wreck that is becoming visible a couple of decades from now. Using a combination of employer pensions, social security and medicare, our nation virtually eliminated poverty for the elderly in the last generation. Now even as pensions dry up, we are in the midst of a budget debate that seems likely to slash medicare and social security benefits as well. Our deficit is dire, to be sure – but so is the spectre of a generation of indigent elderly. And none of the deficit plans put forward by any quarter seem to have offered a solution to that.