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Big Businesses Put Corporate Profits Over Workers’ Pensions

by Adam Price |
September 1, 2005
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San Jose, CA - On July 19 Hewlett-Packard, or HP, one of the country’s largest computer makers, announced that they would cut almost 15,000 jobs and dismantle their workers’ pension program. HP said that it could increase its profits $300 million a year by ending pensions for all new workers and cutting pension payments for all but the oldest and most senior workers - and expanding their 401(k)retirement program instead. HP is just another big business to slash their workers’ pension plans. In 1979 over 60% of workers with retirement benefits had pensions, but now less than 13% do.

401(k) plans are risky for workers. Unlike pensions and Social Security, which are types of insurance against running out of money after retirement, 401(k) plans are investments which may or may not offer workers a lump sum of money upon retirement. It depends on how the investments do. One big risk for workers is that many 401(k) plans are largely made up of their employer’s stock. If the company goes bankrupt, as in the case of Enron, the workers can end up with nothing. Another big risk is a general decline in the stock market, like what happened in 2000 to 2002, a decline from which older workers with 401(k) plans never recovered.

While non-union businesses like HP have a relatively free hand in cutting pensions, unionized businesses like steel and the airlines have used bankruptcy to slash pensions. Pro-big business laws and courts have decided again and again that companies’ promises of payments to owners of their bonds (and almost all corporate bonds are owned by the rich) come before promises of pensions made to their workers. In many cases the workers’ pensions are taken over by the government-backed Pension Benefits Guaranty Corporation (PBGC), with much smaller retirement payments.

Many corporations, rather than cutting their workers’ pensions, have just cut the dollars that they pay into the pension plans. One study show that 85% of large corporations that offer pensions have underfunded plans. This has left 500 large corporations with a shortfall of $164 billion in their pension plans, when the monies in the plans now are compared to the promised future benefits. This shortfall, along with a smaller ($23 billion), but growing shortfall in the PBGC, has led to talk of a ‘crisis’ in pensions.

But, like the talk of Social Security going broke, this ‘pension crisis’ is phony. These same 500 large corporations are sitting on $634 billion in cash. Rather than use this money to fund their workers’ pensions, corporations want to hoard these profits to buy other companies or pay the owners of their stock.

One case is Exxon Mobil, whose pension plan has the second largest funding gap of any company, about $10 billion. But high gasoline prices meant Exxon Mobil made $25 billion in profits last year alone, and it is sitting on more than $20 billion in cash. This is more than enough to fully fund their pensions, but Exxon Mobil plans use this cash to pay out $15 billion to their shareholders and buy up oil companies in other countries.

There are now bills in Congress that would shore up the Pension Benefits Guaranty Corporation. Despite having some positive points, these bills do not address the real problem: Corporate America’s pursuit of ever higher profits at the cost of their workers’ jobs, wages, benefits and retirement. Workers and retirees will have to fight to protect their pensions just as we have fought for Social Security.