Thursday, June 23, 2005

messin' With Our Money

Messin’ With Our Money

“In putting forth defined-contribution plans -- especially the kind called 401(k) -- employers were essentially engaging in a shell game. Plans of the 401(k) variety were originally devised as a way for workers to save some of their own money (sometimes with contributions from employers) to supplement traditional pension benefits. Increasingly, companies began to present 401(k)’s as their only retirement plan. The result was that workers ended up paying most of the cost of their retirement benefits, and employers were relieved of huge costs and financial risks. Between 1985 and 1998, the number of 401(k) plans -- as well as the number of participants -- tripled, while the assets in the plans reached $1.5 trillion.”- Phillip Mattera Retirement Ripoff: Corporate America’s Campaign To Reduce Its Pension Costs

Most AmeriKKKans were too engrossed in the media orchestrated Michael Jackson side show or the missing fiancee drama to pay attention to the fact United Airlines with the assent of a federal bankruptcy judge defaulted on their 6.6 billion (that’s with a b) pension obligation which has created an economic tsunami that will influence the other major air carriers who are also contemplating getting out of their pension obligations. The pension defaults of the airline industry will impact other industries especially those in financial trouble such as General Motors and Ford. This means, companies in financial crisis can opt to default on their pension obligations leaving their workers stranded with nothing. A prime example of this is what happened to the Enron workers. This is a form of class warfare as the owners and executives save themselves at the expense of their workers . In an article in Ethical Corporation Magazine’s Online version entitled North America: Corporate Pension Funds and Their Defaults stated, “According to Representative Jan Schakowsky, a Democrat from Illinois and member of the energy and commerce committee, although 20% of under funding is a result of financial distress, the rest is business 'dodging their responsibility'. And many view actions, like United’s, as a means for companies to not only escape their pension debt, but to also escape their union contracts. Economist Douglas Orr of Eastern Washington University says companies have used a variety of tactics to renege, including what he calls 'strategic bankruptcy'. Companies maximise their bargaining position in bankruptcy proceedings by inflating estimates of current liabilities while deflating estimates of current assets, creating a perfect vehicle to avoid pension liabilities, he says. LTV, a US steel company, used the tactic in 1987 to avoid pension liabilities and when financially solvent again, renegotiated contracts with labour and suppliers for competitive advantage. Despite other financial difficulties that have forced United into bankruptcy, it is, Orr says, part of the airline’s strategy in dumping its plan.” So you see it’s not just a company falling on hard times or getting caught in the economic vortex, it is a deliberate strategy on the part of management and owners to leave their workers hanging!
The reason most people aren’t aware of this is because the media and the US government are deliberately keeping us ignorant about what is going on. This has the potential of being the financial crisis of our time. Most of us don’t read the Wall Street Journal, the Financial Times or pay attention to the business sections of our local newspapers so we don’t know what is happening, nor do we know how pensions work or how we are being played by the system. The article also stated, “Pension experts and economists worry the concession to United will create a domino effect among its competitors, causing healthier airlines to dump their under funded plans to stay competitive with restructured rivals. The PBGC already took over US Airways’ pension obligations of $3 billion earlier this year and struggling Delta airlines is predicted to follow suit. Bradley Belt, executive director of the PBGC, says the settlement put the agency in a better position than it would have been in as an unsecured creditor in bankruptcy. But he acknowledges the United case should be a “wake-up call to reason” to take action so the pension problem does not spiral out of control. Industry experts warn automakers’ troubles may make them among the next to default on their plans. General Motors’ pension obligations at the end of 2004 were $89 billion, while Fords’ totalled $43 billion, of which $12.3 billion is unfunded.” This didn’t stop the CEO from raking in huge bonuses or compensation packages. The article further states, “Many companies' executives, however, are taking bold measures to protect their own pensions. Take Polaroid, where retirees were paid a mere $47 each when the company sold its assets in bankruptcy and defaulted on its plan, while Polaroid's top executives walked away with millions of dollars. The PBGC later assumed responsibility for the abandoned plan covering more than 11,000 former Polaroid employees.”
The financial crisis faced by the airlines, is not an isolated problem. The same issues were faced several years ago by the steel industry and they opted to default on their pension plans also. The same scenario will soon visit the auto industry; ownership or management attempts to save money by cutting costs. One way is by not fully funding their employees pension programs or in the case of the steel and airline industries defaulting on their obligations altogether! These pensions are called Defined Benefit Pension Plans where the employer agrees to contribute a specific amount into the employees retirement program that the employee will have access to upon retirement. Defined benefit Pension plans were the norm up until the 1970's when a new program called Defined Contribution Plans commonly known as 401K programs became popular. With Defined Contribution Plans the employee contributed ( and in some cases their contributions were matched by the employer) to a fund that was invested in the stock market. The problem with 401K type plans if the market goes down so do your funds. That is why a few years ago during a sluggish market people referred to their 401K as 201K because they had lost so much money and were so devalued. There is a newer form of plan called the Cash-Balance which is a hybrid of the two plans Defined Benefit and Defined Contribution plans whereby the employer controls the fund and gets to keep any earnings beyond he agreed upon rate of return.
We have seen how 401K took a major hit due to the woes of the stock market and now we see the problems endemic to corporate corruption when large companies withheld the money for their employees pension funds under funding them by billions of dollars. What this means is that millions of AmeriKKKans are unaware their employers have not been contributing to their pension funds! Also these funds ahve been raided especially by cash strapped state and local governments. States like Indiana or cities like Detroit raided or contemplated raiding their worker’s pension funds to help balance their budgets. In the case of United Airlines like the steel industry before them, the employees are now dependent upon the US Pension Benefit Guaranty Corp an entity designed to bail out failed pension funds. The problem with this arrangement is, the PBGC is itself underfunded by billions of dollars! A recent article on the American Enterprise Online dated 06-16-05 by Alan W. Dowd warns, “Last week, the Senate Finance Committee held a hearing on the precarious state of pension funding at some of the nation’s larger employers, paying special attention to a few airlines. The head of the government’s Pension Benefit Guaranty Corporation (PBGC) reported that more than 1,100 plans are currently showing a shortfall of $50 million or more, with the total tally ranging between $353 billion and $450 billion. Those companies that fail to make good on their pension promises usually toss their debts over to the PBGC, which collects premiums from participating corporations to pay for bankrupt pensions. According to the PBGC, it is already responsible for the current and future pensions of 1.06 million Americans (and counting). Thanks to a spate of bankruptcies and bad pension management, PBGC is now carrying a debt $23.3 billion (and counting), and the taxpayers may be asked to bail out these failed pensions.”
The US economy is in trouble, the trade deficits, the federal deficits, the humongous debt bubble of both corporate and consumer debt cannot continue indefinitely. So not only are the airlines and auto industries in trouble now, their workers are facing double disaster because both their jobs and their pensions are at risk! To add insult to injury, the federal bankruptcy judges are allowing the corporations to get away with this and the mainstream media is keeping you ignorant about what is going on. Wake up, before these thieves and con men rob you blind. Couple this current situation with what Bush is attempting to do to the Social Security system (which could bring about the same results suffered by 401K accounts) and the future is anything but secure.



Post a Comment

Links to this post:

Create a Link

<< Home