At Work

Boeing agreement just the next nail in retirement coffin

2014

The new contract between Boeing and it’s union workers contains the following essential changes:

From Bloomberg.com The new contract is an eight-year extension to 2024 and includes $15,000 per member in bonuses and retention of a seniority system letting workers reach the top of the pay scale within six years. In exchange, they agreed to freeze pension contributions in 2016 and shift to a 401(k)-style plan with defined employer contributions instead of their current program of fixed benefit payments.

While I doubt the average Boeing employee will ever buy a Boeing jet, an analogy with Henry Ford comes to mind. In January 1914 Henry Ford doubled the daily wage for most workers to $5.00 ($116.53 in 2013). He sought to motivate assembly line workers, but also reasoned that as long as he was building a more affordable car he needed more people to be able to afford to buy them. His higher wage affected all of America and auto sales took off.

In contrast, in America today we are creating a generation of future retired citizens who won’t be able to afford much of anything. While it’s true the majority of Americans in the private sector never had a defined benefit pension, those with such a pension has been declining rapidly for forty-years.

Here is what the Wall Street Journal had to say about the Boeing agreement on January 6, 2014:

One reason union membership in the U.S. has shrunk to 6.6% of private workers from 35% in the mid-1950s is that to remain competitive businesses are fleeing union workforces that refuse to change. Detroit was a casualty of this jobs flight, and Seattle may have been another had Boeing machinists insisted on preserving their traditional pensions, which no longer exist in most of the private economy and leave workers hostage to economic fate. A 401(k) lets workers build assets immediately and transport them from job to job. The Boeing vote is a victory for common sense, the U.S. economy, and especially the Boeing workforce.

I find this amusing because that “transport from job to job” nonsense is the same cool aid we swallowed thirty years ago. The fact is that workers such as Boeing union employees do not jump from job to job with regularity. The fact is they will be significantly worse off with a 401k than with a traditional pension. The fact is that with a 401k the workers are also hostages to economic fate. They are individually subject to the vagaries of the stock market plus there is no guarantee of the employer match critical to building savings. During the Great Recession many employers reduced or terminated the company match; some later reinstated it, some didn’t. A 401k is better than no pension, it sure as hell is not better than a defined benefit pension. Ask government workers where traditional pensions at the federal, state and local levels are the norm and likely to remain so.

Companies can’t be competitive while offering a pension plan, workers can’t (or won’t) fund their own retirement and health care coverage, but everyone can pay the taxes needed so government workers can enjoy pensions, low-cost and sometimes free health care in retirement and sometimes a 403b plan as well. What’s wrong with this picture? Is this the utopian world of progressives?

The actions by Boeing and hundreds of other large employers across the Country are setting the stage for more and more dependency on Social Security and thus giving credibility to the Elizabeth Warren types who want to raise benefits and taxes. Employers worried about being competitive should think about what they are doing in terms of creating an environment where their costs will be determined by Washington in the form of new and increasing taxes for the very things (pensions and health care) they seek to avoid.

And while the older population increases and the secure income of this group decreases and the costs for health care increases, the ability for us seniors to buy our own Boeing 777 (or a Ford, a vacation, perhaps even groceries at Walmart) diminishes. Does anybody think ahead? I wonder if that Boeing $15,000 bonus is eligible for 401k employer match?

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    Retirement is trashed

9 replies »

  1. One last thing regarding defined benefit pensions. They can be reduced if not entirely eliminated if the company guaranteeing those benefits goes through bankruptcy. Ask retired pilots at TWA. Of course, the Pension Benefit Guaranty Corporation does guarantee the so-called defined benefit up to a certain amount in case of bankruptcy. But there are thousand of retirees whose so-called defined benefit was re-defined after bankruptcy.

    Yes, it would indeed be wonderful if defined benefit pension plans made a resurgence. Perhaps sometime in the future they will. Meanwhile, American workers can shake their fist at the tide, but they may want to stand back a bit, re-evaluate the situation, and plan for a tomorrow different than the past.

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  2. I spent the first half of my life in the Rust Belt. Over four decades companies have moved from there to more labor friendly states, and of course out of the country. Boeing was prepared to establish a new facility elsewhere than in Everett, WA. That is a widely shared opinion among analysts who specialize in Boeing-watching.

    As far as the highly trained work force, yes, Everett, WA currently has that. But if Boeing decided to put the new plant in South Carolina, thousands of the Washington work force would follow them there. Why? Because no other company or industry would pay them a higher wage than Boeing.

    I’ve seen it up close and personal, some union members still somehow believe they are living in the 50’s, where they can threaten strikes and get their way. Thank goodness the Machinist’s Union had enough members come to their senses and agreed to a contract where they are still the highest paid manufacturing workers in Washington State.

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    • Except they just agreed to a cut in take home pay big time. Now they will have to fund most of their retirement which at a minimum they will have to divert 8-10% of income into retirement savings with no guarantees on that income.

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  3. Well said, Mr. Quinn. I guess you really do understand what’s been going on in this country for the last 40 years. Boeing pounded that union into submission with a mere “head fake”. They never really planned to leave the in-place infrastructure and the trained work force that they have in Washington state.

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  4. You are full of it!!! Defined benefit pension never go up!! I’ve been on a defined benefit pension since 1991. The company doesn’t have to give COLA raises and so doesn’t.
    Try living on a fixed pension for 25 years. Talk about poor!!!

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    • You are right, except for public employee pensions, it is unusual for a defined benefit pension to have a COLA, but that does not detract from their value. Remember the three legged stool concept? Retirement income was to include a pension, Social Security and personal savings. The personal savings and to some extent Social Security are intended to help deal with inflation. It is also true that most private pensions are not employee contributory whereas the 401k depends on both employee and employer contributions.

      With a 401k you must not only save enough, you must invest wisely and you must determine how much you can withdraw each year so that you don’t outlive your assets. That is not easy (while still dealing with inflation). As you know, the 401k can go up and down and if it goes down at the wrong time, you could be in trouble. Even without a COLA isn’t a guaranteed income for life a better deal, if nothing else for piece of mind?

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