the Voice of
The Communist League of Revolutionary Workers–Internationalist
“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx
the Voice of
The Communist League of Revolutionary Workers–Internationalist
“The emancipation of the working class will only be achieved by the working class itself.”
— Karl Marx
Jul 29, 2005
On May 10, a bankruptcy judge approved United Airlines’ plan to dump its four pension plans, immediately cutting off 121,500 active and retired workers. All it took was the wave of a judge’s hand, and United shed 9.8 billion dollars of its pension liabilities. Responsibility for 6.6 billion of those liabilities was dumped onto the Pension Benefit Guarantee Corporation (PBGC), the quasi-governmental insurance agency set up to cover pensions of defaulting companies. The remaining 3.2 billion dollars disappeared into thin air.
A minority of United’s 60,000 retirees will continue to draw their full pensions—only those who waited until age 65 to retire and were drawing less than $45,000 a year in pension payments. But even these "lucky ones" take a big hit: the PBGC does not pay for other aspects of pensions like the medical coverage that most retirees desperately need, as well as the life insurance and death benefits that surviving spouses depend on. And surviving spouses take a very big hit, since United’s plan cuts the pensions in half when the insured worker dies, and the PBGC cuts still more.
Any worker who took retirement before age 65 will be hurt more severely. If they retired at age 60, for example, their pensions can be reduced by as much as 40%. And this includes all those people who took an early retirement over the last few years, when United was giving special inducements for workers to retire early as a way of reducing its workforce.
Those hurt most will be the 61,000 active workers whose pension accounts will be frozen as of May 10, 2005, with no more contributions going into the accounts. Even workers who had already accumulated twenty years of service could discover that their pensions will be only one-third to one-quarter of what they expected, depending on what their age was as of May 10.
Adding to the disaster, many United workers had saved for their retirement by contributing to an Employee Stock Option Plan—invested in United stock made worthless by the bankruptcy—and a 401(k) plan, which most United workers had also concentrated in United stock.
In the words of a United retiree who wrote in desperation to a Congressional "e-hearing" looking into pension defaults: "If I lose my pension, or it is reduced, I don’t know what will happen to us, particularly with any interference in the Social Security benefit plan. There are people who are scared and tired out here and I’m one of them. What’s happening with United is simply the beginning. Doesn’t anybody see that? I feel like this country is in the hands of an unfeeling, unconscious power who cares little for the mass number of Americans."
Or put more bitterly by a still active worker: "I have worked for United for twenty years this June. My pension at this point is: "work till I die."
United is not the first airline to dump its pensions via the bankruptcy route. Braniff, in 1982, and Eastern and PanAm in 1991, for example, had done so—but with this difference: their pensions were dumped in conjunction with company shut-downs. By the time they went into the bankruptcy courts, they were mere shadows of themselves, not like United, which continues to operate as the second biggest airline in the country, just behind American Airlines.
Nowadays, bankruptcy is still used to wrap up the affairs of a defunct company, but more and more, it is also used by some of the biggest companies in the country as a way to dump obligations to employees while the companies continue running. Bankruptcy doesn’t mean the companies have no assets—Kmart, for example, was able to buy up Sears, which was bigger than Kmart, soon after Kmart came out of bankruptcy. Nor has bankruptcy prevented the companies from paying out big compensation to executives—in many cases, more than before.
The money paid out to United CEO Glen Tilton is a case in point: In the two and a half years after he took over as head of the newly bankrupt company, his total compensation came to almost 6.5 million dollars. This did not include a special pension "trust" set up just for him—into which 4.5 million was put. Even if United were to close itself down in full bankruptcy proceedings, the courts can’t touch Tilton’s pension—it’s held in "trust."
With such a useful scam, no wonder other airlines rushed to check out the bankruptcy courts. American Airlines threatened to go there in 2003, before it got its unions to agree to such big concessions that there was no need to go the bankruptcy route. Today, Delta and Northwest, having watched United make off like a bandit, liberally sprinkle their press releases with talk of imminent bankruptcy.
To get an idea of what these companies do, check out Northwest’s recent finances. In 1989, Northwest’s current Chairman Gary Wilson and recently retired Director Alfred Checchi put together a group of money men to leverage a 3.6 billion dollar buyout of Northwest—meaning that Northwest was saddled with the debt that this group arranged so they could buy out the company. They had been Marriott executives, but they took over Northwest, awarding themselves handsomely, not only with wages and bonuses, but also with further stock options and grants. Since January of this year, the two men have been selling off their Northwest shares, as though Wall Street were going out of style. Checchi sold off about 80% of his shares, giving him a return of 26 million dollars. Wilson, cashing in about 70% of his shares, made off with about 17 million dollars. And CEO Doug Steenland has a separate pension trust that will pay him $947,417 a year for life, when he retires at age 65—a pension also untouchable by the courts. Northwest is now pushing two of its unions for concessions, threatening them with an imposed contract and a lock-out with hiring of scabs—or bankruptcy, if that doesn’t work.
Of course, there are other ways than bankruptcy to dump pensions and the medical coverage associated with them. A company can legally terminate a pension plan at the end of a contract, for example, if there is a union contract; or simply announce a cut-off date, if there isn’t one. And many companies did just that. In some cases, they replaced a defined benefit pension with a 401(k); in other cases, they dumped their pensions altogether. But such moves can have several drawbacks from the companies’ standpoint: first, without the cover of bankruptcy proceedings, they can prompt a strong reaction among the workers or retirees; second, the companies have to continue paying for the pension credits already earned—all the way up to the point their current workers are dead.
Bankruptcy, however, allows companies to dump the responsibility for all their pensions and associated medical care in one single blow, and it does so with the authority of a judge who solemnly tells the workers they have no other choice.
United is not the only company to continue functioning under bankruptcy. The steel industry is a special case in point. In the roughly six years from January 1, 1998 through 2003, 44 steel companies, with a total active workforce of 86,000 employees, declared bankruptcy. These bankruptcies included some of the largest steel companies in the country, including Bethlehem Steel—which had been the number two producer after US Steel—as well as Weirton, LTV, National Steel, Wheeling-Pitt, and Republic. As of today, only 14 of the companies that declared bankruptcy—for the most part the very smallest ones—remain completely shut down. The rest either continued to operate as they had been or they merged with other companies or they were bought up by other companies. The biggest obvious change was the dropping of pensions and medical coverage.
One of the conditions set in almost every merger or purchase was that the pensions first had to be transferred to the PBGC, and the bourgeois press spoke openly about these conditions. When WL Ross & Co. was negotiating to take over Bethlehem Steel, the Baltimore Sun explained that Ross wouldn’t go through with the deal "unless Bethlehem... liquidates under a Chapter 7 bankruptcy or gets the Steelworkers to agree to dump retiree obligations."
The case of the International Steel Group (ISG) is indicative of today’s situation. In April of 2002, W. L. Ross, a New York investment banker, bought up the liquidated assets of LTV Steel, renaming it ISG. Acme Metals was added to ISG a few months later. Then came Bethlehem in early 2003, and Weirton in early 2004. Within two years, ISG had become the biggest consolidated steel company in the U.S., bypassing US Steel and Nucor. Retirees and employees of the former companies had lost their pension plans and paid medical coverage.
But for Ross, the real icing on the cake came in late 2004, when he sold off his holdings to a Dutch company. This turned a very tidy profit for him—his small Wall Street investment company had bought up the four steel companies, paying out 400 million dollars cash, and taking on one billion in debt to do so. He sold the conglomerate for 4.5 billion. Ross paid $3 a share for his holdings and got back $42 a share—for just over two years’ work—although work is hardly the right word to use.
By 2004, the steel industry as a whole had returned to profitability, while some of the biggest companies, fresh from the bankruptcy courts, saw enormous increases in their profits. Mittal, the new company formed in part from ISG, saw profits in its joint companies jump by almost 300%. Severstal—which had taken over Rouge Industries, already bought and sold several times by Ford—increased its profits by 130%; Nucor, specializing in buying up bankrupt "mini-mills," enjoyed an increase of profits by nearly 100%.
Of course, the competition between capitalist concerns has long led to bankruptcies, mergers, buyouts, etc. It was how US Steel, the one-time dominant player in the industry, was put together at the end of the 19th century. When the steel industry went through that shake-out, there were no pensions and few protections enjoyed by the workers. Today, after 50 years during which steel workers assumed that promises of a pension on retirement were good coin, they are being pushed back to where the workers were in the days of the first robber barons.
Over the six-year stretch 1998-2003, when steel was rushing to the bankruptcy court, more than 300,000 active steel workers, retirees and surviving spouses saw their pension plans dumped.
The United default may have been the largest company default on pensions—and Bethlehem the second largest—since the PBGC was set up to insure pensions, but these companies hardly stand alone in throwing their pensions into the lap of the PBGC. Between 2001 and 2004, the number of retirees drawing payments from the PBGC doubled.
The PBGC saw its balance sheet fall into deficit during this last period. It went from carrying a nearly eight billion dollar surplus in 2001, to running a 23 billion dollar deficit by September 2004. This is certainly not because its payouts are so generous—in 2004 its mean payout was only $281 a month.
The PBGC had been set up in 1974, after nearly a decade of protests by unions and senior groups. The 1950s and early 1960s had been particularly difficult for workers in some industries. Then, as now, smaller companies collapsed, only to have their facilities and even their workforces taken over, as heavy industry went through a period of consolidation. Barely had workers begun to retire and call on the pensions they had won during the 1940s before one company after another went belly-up.
At the time, there were renewed calls for pensions to be handled in one simple publicly run system, Social Security. Instead of paying into their own pension plans and Social Security, companies would have put both contributions into Social Security.
The companies, of course, weren’t interested, since they continued to hold the pension moneys that supposedly accumulated over the years—in funds, by the way, for which there is little public accountability. Moreover, the arrangement whereby pensions kept workers attached to one company suited the bosses during years of relative labor shortage. They certainly did not want to pay all their contributions into one big pension fund for the whole working population, which they didn’t control, from which they drew no apparent benefit, and which might have made it easier for workers to leave employers when they were fed up.
The compromise that was struck called for a kind of insurance company to be set up, into which every company with pensions would pay a very modest premium (it still is only $20 per worker a year). This insurance company would handle the occasional failure of companies, taking over their pensions, etc. The isolated and dispersed nature of individual union contracts was reinforced. It reflected the corporatist arrangement of most workplace benefits in this country.
The unions have defined workers’ interests on the most narrow basis, industry by industry, corporation by corporation. Instead of workers tied to each other through common class interests against the capitalists, each set of workers is tied to its "own" corporation, and to its corporate interests! It is, in other words, a business arrangement.
The unions went along with that arrangement, with the result that most unionized workers—never more than 35% of the working class—drew a pension from their own boss, while the majority was left without a pension and only a small Social Security check.
In fact, the PBGC was never anything but a band-aid put over a festering sore. Today that band-aid is about to be ripped to pieces—as all the talk about a "pension crisis" testifies. Just as with the so-called "crisis" at Social Security, most of the discussion focuses on reducing the already meager benefits paid by the PBGC to workers, while giving companies in difficulties "some breathing space." What kind of space? Consider this: Congress is debating a proposal that would let underfunded airlines defer payments into their pension funds. Currently, they have four years in which to start contributing if the assets in their fund go below 90% of liabilities. (Of course, that’s only the formality since, just as with income taxes for big corporations, there are lots of loopholes.) In any case, there is a push in Congress to extend that time to 14 years. Moreover, a number of the biggest unions in the country are supporting a proposal to give a similar "breathing space" to all companies.
Today, the bosses feel the workers are disposable. The high level of real unemployment provides them a ready supply of workers, so they look at pensions and retiree medical care as an unnecessary expense—one they want to get rid of. And the unions are still going along with what the bosses want—they are worried more about the financial problems of the bosses than about the problems of the workers. Look at the Steelworkers’ union, seeking to facilitate mergers by negotiating contracts allowing for greater productivity and no pensions! Look at the airline unions, whose main complaint is that they already gave "enough" to make United profitable through two earlier rounds of concessions.
If there’s anything that shows the craven stance of the unions today, it’s what the UAW has done confronting GM’s demands to reduce medical benefits for retirees.
The groundwork for this attack was laid back in 1988, when General Motors changed the terms of medical coverage for its salaried retirees, increasing drastically the amount those retirees had to pay. The retirees went to court to protest, many of them producing their retirement papers, which were filled with GM promises of fully paid lifetime medical coverage if they took an early retirement.
It took ten years for the case to wind its way up to the Supreme Court, years in which the corporations were really on the offensive and during which the working class seemed unable to resist. Finally, in 1998, the Supreme Court let an Appeals Court order stand regarding medical care attached to pensions. The reasoning of that court is worth noting: According to these hair-splitters steeped in the law, "there is nothing inconsistent between promising lifetime benefits and reserving the right to modify those benefits." Companies around the country were poised to move as soon as the Supreme Court passed on the case. The floodgates were opened for companies to make massive changes in retiree medical benefits. Plan after plan increased co-pays and premiums, at the same time excluding more and more expensive coverage. By 2003, only 21% of companies offered medical coverage to retirees, down from 40% only ten years before.
Today, GM is pushing to do the same thing with its unionized work force. While it may not officially be going to the bankruptcy courts, it might as well be doing so, for all the propaganda that has been made about its financial "crisis."
What crisis? GM and its subsidiaries had 55 billion dollars in ready cash and securities as of the end of the last quarter. It paid CEO Bill Wagoner 57 million dollars over the last five years, with tens of millions more going to other execs. It bought up Saab, the Hummer, part of Isuzu, part of Fuji Heavy Industries, part of Suzuki and most of Daewoo Motor assets. But the high point came in 2005 when it paid two billion dollars to get out of an agreement with Fiat for which it had earlier paid 1.2 billion. GM cleared profits of 20 billion over the last five years, and never yet missed paying dividends, $2 a share every year.
The issue is not lack of money, of course. The issue is that all the companies are taking back retirement benefits, and GM doesn’t want to be left out of the stampede just because it’s the biggest industrial corporation in the country.
In the face of this, the UAW leadership has hired Wall Street analysts to "examine" GM’s books, to see if the company really is in as bad a shape as it says it is. What nonsense—as though GM would tell the truth, and as though a Wall Street analyst would be neutral! It’s as absurd as believing a bankruptcy judge would take the workers’ side when the bosses want to dump their obligations.
Asking for this analysis is nothing but a maneuver that lets the union leadership justify the cuts in medical benefits they have already agreed to, which have been sizeable: for example, changing co-pays on prescriptions and replacing the standard Blue Cross plan with a specially-constituted—that is, reduced—PPO. And it opens the door for much bigger cuts next year.
A business analyst for the Sanford C. Bernstein brokerage reported to his clients that he is optimistic GM will extract significant concessions despite—actually because of—the union’s recent hiring of high-powered Wall Street advisers. He pointed out that some of the same advisers worked with the United Steelworkers of America in negotiations with Goodyear in 2003. In those talks, the unions ended up giving concessions on wages and benefits.
If GM gets away with this attack, coming on the heels of the attacks by airline and steel companies, it will open the door to every company to carry out a widespread ruthless attack on every benefit.
This disaster is being produced by a labor movement organized in extremely corporatist fashion. In fact, pension benefits were the fruit of a wider working class movement, but the companies and unions agreed to set up the benefit plans separately for workers in each industry and company, and for only a small minority of the working class. This "business unionism" arrangement makes it much easier for companies to dump the pensions individually.
By contrast, Social Security, which is also under attack, is much more difficult for them to unravel, because it requires an attack against the whole working class. That isn’t to say it can’t be dismantled. But if it has lasted this long while one pension plan after another has been destroyed, it’s because the whole working class pays attention to it.
The workers have no reason to make a single sacrifice. The wealth they have produced has never been greater. The workers should benefit from this increased wealth—which they have produced by working more productively. We should be able, all of us, to work fewer hours a week and fewer weeks a year during our working lives; and we should be able to leave the working world behind earlier, having more leisure time in the second part of our lives. We are in the 21st century, not in the 19th. The only obstacle to a decent life for all of us is the greed of the bosses.
When these big companies held bankruptcy over the workers’ heads, then continued to make money, they proved it was only a scam. Bankruptcy was aimed at making it easier to get rid of all their obligations to the workers.
But workers can refuse these outrageous sacrifices the bosses demand. If the workers at United or at GM started a real fight to make the company pay what it ought to pay, they could force these big thieves to back off, for awhile at least. In so doing, they could encourage other workers to fight for their own rights also, which is the only way that any single group of workers really can protect themselves.
The problem of pensions is a problem for the whole working class: The workers’ aim should be to force all the bosses who benefit from the workers’ labor to give back to the whole working class the means to retire with a decent standard of living. Our aim should be to make every boss pay, so that pensions do not depend on the good will of every individual boss. They have no "good will." Pensions should become the right of every worker to have a decent retirement income, when we’re still young enough to enjoy it, along with all the health benefits needed.
The bosses must be stopped from pulling the working class back to the 19th century. This can be done only by rebuilding the fighting spirit of the working class. A show of strength can make the bosses yield to our basic needs.