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[Commentary] © 2002 Philip Hyde, The Timesizing Wire™, Box 622 Cambridge MA 02143 USA (617) 623-8080

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Eroding Retirement, 6/2002 & previous

6/02/2002   retirement warnings from the NY Times (NYT) & Boston Globe (BG) -

• Early retirement offers peaked in '90s, BG, G2.
  [That might be a sign of economic health except that, in terms of the old economy that relied strongly on worklife controls - getting older workers out of the job market for keeps - we suspect that the whole concept and practice of pensions in America peaked in the 1990s as well, and was not replaced by the more flexible, less agist and less skill-wasting practice of workweek controls. So this development represents another increase in the wage-depressing, recession-inducing, investment-destabilizing American and global labor surplus. (An additional problem with the whole concept of pensions is that they create a constituency, namely pension-granting corporations, with an interest in shorter human life when the whole long-term goal of our species is longer life. This is similar to weapons manufacturers who have an interest in more war, not less. As long as we tolerate and create these self-destructive interests, we are "a house divided.")]
  The University of Michigan reports that 15% of US workers aged 51 to 61 received an early retirement offer from their employers between 1992 and 2000.... Charles Brown, an economist at the University of Michigan's Institute for Social Research, found that the frequency of early retirement offers peaked in the mid-1990s.. Between 1992 and 1998, for example, just under five offers were made per every hundred employees aged 55 to 59. That figure dropped to less than two offers per hundred by the year 2000, the last year for which data were available....
  Of the early retirement offers made, only a third were accepted. Of those, two-thirds said they would not have retired without the special, time limited inducement. ...Slightly more than half of the offers included a median cash bonus of approximately $23,800. Improved pension benefits were included in 36% of the accepted offers.
  [In the old economy, retirement pensions served as an effective check on labor surplus economywide because they signalled a withdrawal of employees from the job market for the rest of their lives. In what we see as the "new economy" (a rather more ominous version than the dot-com version of the late 90s), pensions serve only as a check on labor surplus within a single corporation. How effective were these early retirement schemes at getting surplus labor completely out of the job market economywide?]
  ..\..The study concludes that early retirement offers make over the 8-year period reduced the employment of individuals in the...51-and-older group by about 2%.
  [Not very effective, even with a deteriorating job market helping.]
  

• Retirement - Workers' confidence in pensions declines, by Diane Lewis, BG, G2.
  Pension blues - Workers have grown increasingly uneasy with the retirement and pension plans provided by employers. In 2002, only 23% said they are very satisfied with their current employer's plan. That's the lowest level of satisfaction expressed since the survey began. By contrast, satisfaction peaked at 35% in 2000. [Chart caption.]
  American workers are concerned about their pensions. Such are the findings of a new study conducted by Rutgers University of Connecticut. The study, part of an ongoing series titled, "Work Trends," is based on a survey of 1,000 US employees and 500 employers.
  A key finding: US workers have serious doubts about their employers' commitment to pension security. ...Less than 40% were extremely or very confident that their employers' pension plans would be able to pay them enough benefits after they retire. By contrast, 80% of the employers maintained there would be sufficient funds to meet pension obligations.
  The study's findings follow the collapse of Texas-based Enron Corp. The energy giant's bankruptcy, the largest US corporate collapse, caused thousands of Enron employees to lose their retirement savings....
  [Not to mention Polaroid, not to mention all the companies that went after employees just before their retirement to lay them on save paying their pensions.... - never mind the damage to foundational consumer markets and investment stability.]

• Penalties sought in pension violations - 13 firms underpaid workers, audit finds, by Diane Lewis, BG, F1, F4.
  ...Audit records obtained by US Rep. Bernard Sanders show that hundreds of workers were underpaid a total of $17 million in pension plan conversions [from traditional to cash-balance]..\.. Sanders is filing a bill to increase pension law enforcement..\.. [photo captions]
  ...Said Sanders, an independent from Vermont, "\Because\ these companies did not use the interest rates they are legally required to use when projecting pension benefits to employees...workers who left these companies early were paid substantially less than they should have been paid."... [The 13 cheating firms constituted 22% of the 60 firms audited by the Labor Dept.]

• Pension plans cheating those who quit early, audit finds - Improper administration of cash balance plans may be costing workers $85m-199m/yr, a federal audit shows, by Diane Lewis, BG, C3.
  ...With the number of baby boomers approaching retirement increasing yearly, many US companies have switched to cash-balance [pension] plans in a push to save money and reduce costs.
  [So are we as well off today as we were 15-30 years ago? No way. This is yet another way that prosperity may have been doing a "trickle down" over the last generation (= 30 years), but meanwhile it has been absolutely GUSHING up into the top income brackets, creating a much huger black hole of unspendable spending power than there are market-sustainable investment targets for it to be stored in = a typical Kondratieff-wave pre-depression situation blending into a Marxian "capitalist self-destruct" scenario (i.e., chronic depression).]
  The government estimates that the 300-700 traditional [defined-benefit pension] plans converted to cash-balance plans since the mid-1980s have $334 billion in assets and affect 8 million working Americans..\..
  • In a [traditional] defined-benefits plan, the worker's monthly pension is determined by a formula based on years of service and final salary or pay. Years of service is multiplied by a percentage of the final yearly salary that can range from 1 to 2%.
  • In [new] cash-balance plans, by contrast, the money contributed by the employer is distributed more evenly over the years of service. Like a 401(k), however, this plan is portable, which means that the workers can take a lumpsum payout when they leave. Unlike the 401(k), the plan is funded solely by the employer..\..
  An investigative arm of the US Labor Dept. [now, however,] estimates that hundreds of employers who have converted traditional pension plans to cash-balance plans since the mid-1980s may have underpaid workers who quit before normal retirement age but a total of $85m-199m per year.
  The department's Office of the Inspector General conducted an audit of 60 US companies which revealed that 13 companies, or 22%, did not pay all the accrued benefits legally due employees who left early. Workers at those companies lost an estimated $17m a year, the office said in a report....
  The report also concluded that the Pension Welfare Benefits Administration, which oversees retirement plans, "has not devoted significant resources to protecting participants' benefits in cash-balance plans."...
  [So here's yet another direction, in which we weren't looking, where the wealthy have been stripping the non-wealthy and further strangling the market foundation of their own mega investments. Brilliant. The Chesterton Pan-Utopian Flaw finds another manifestation.]

1. Retirement insecurity, pie charts from Economic Policy Institute via Globe staff chart via Boston Globe, G2.
   More than 40% of households headed by someone between the ages of 47 and 64 will not be able to replace even half of their preretirement income once they stop working.
   Share of households with an expected retirement income of less than one half current income:
   • 1989   29.9%
   • 1998   42.5%

2. Retirement - Report predicts many face financial woes, by Diane Lewis, BG, G2.
   Here's some troubling news for American workers.
   Despite a soaring stock market in the 1990s and the growth of 401(k) plans, many US workers will not be able to replace even 50% of their current annual wage after they retire. In all, more than 40% of working Americans between the ages of 47 and 64 fall into this category, reports the Economic Policy Institute. Of those, 20% will be living in poverty.
   [Is that 20% of the "over 40%" living in poverty then? - i.e., 8% of working Americans 47-64 overall?]
   Called "Retirement Insecurity," the study by NY University economist Edward N. Wollf is based on statistics of retirement wealth during the 1980s and 1990s when the nation was in the midst of an economic boom and many hoped prosperity would lead to rising incomes for the nation's poor and working class.
   That didn't happen, Wolff concludes in this report.
   [It never happens automatically, because of the Chesterton pan-utopian trap.]
   Instead, he said, "every group of near-retirees except those at the very top lost ground compared with their counterparts in 1983."
   The reason? Wolff attributes the reduction in retirement funds to employers' shift from traditional defined-benefit plans that guaranteed a company-paid pension to so-called defined-contribution plans such as the 401(k), usually primarily funded by employees with a small company match.
   [Not to mention the fact that many corporations switched from honoring senior employees to going after pre-retirement employees and laying them off to reduce or elminate completely their pensions. This was also popular against employees immediately before their vesting in the company pension plan.]
   "In terms of retirement investment, what should have been the best of times turns into something closer to the worst of times when you look closely at what really happened to retirement wealth," Wolff said. "The contraction of traditional defined-benefit pension plans and their replacement by defined-contribution plans appears to have helped rich, older Americans but hurt a large group of lower-income Americans."
   Other key findings from the study:
   • Retirement wealth for median US households declined 11% between 1993 and 1998.
   • The number of households facing poverty during retirement grew from 17.2% in 1989 to 18.5% in 1998.
   [All this contributes to the weakening of American domestic markets and the gradual embrace of chronic recession in the USA. We are watching "the first become last," because, as Chesterton puts it, our assumption that "no man will want more than his share" is false and so is the assumption that there is an obvious "share" that is appropriate for each and every person. Timesizing.com has a self-adjusting definition of "share per person" in terms of employment, or working hours per week. If we can't agree first on an appropriate share of work per person, we'll never be able to agree on an appropriate share of income or wealth. The one bright spot in this study? -]
   It noted that...Social Security cover[ed] 98.4% in 1998 \of\ the 25% of US retirees who do not have pension coverage..., up from 82.4% in 1983.
   [So overall, 24.6% (98.4% of the 25%) were covered by SS in '98 vs. only 20.6% in '83. This begs the question, did the number of US retirees without pension coverage really stay the same (25%) throughout the whole of that 15-year period?]

2/28/2002   retirement warnings from the NY Times (NYT) & Boston Globe (BG) -

• Cash-strapped states turn to workers, by Steve LeBlanc, AP-NY-02-27-02 2106EST via AOLNews.
  ...More than 700 caseworkers...are doing their part to help ease Massachusetts' budget crunch by voluntarily taking unpaid furloughs or accepting early retirement. The welfare department said those measures will help close a $3m gap and avoid 160 layoffs....

• About 11,000 Delta employees agree to leave company, AP via NYT, C4.
  ...through early retirement or voluntary leave programs, meaning the company will lay off only 2,000 people.... The nation's third-largest airline is eliminating 13,000 jobs as part of an effort to reduce its operations because of dramatically less traffic after the Sept. 11 attacks. About 4,200 employees chose to retire early, many lured by a company offer to add five years to their service records for better pension benefits....
  [So this one wasn't 'forced'.]

• Kraft Foods is offering early retirement, Bloomberg via NYT, C4.
  Kraft Foods, which is integrating Nabisco Holdings into its business, is offering some workers in the United States early retirement in a program that is expected to eliminate 1,000 jobs. Kraft, which trails Nestlé in sales, has been shedding some plants, businesses and administrative staff to reduce costs. Kraft's parent, the Philip Morris Cos., bought Nabisco last December for $18.9B....
  [Again the toxic takeover-downsizing connection.]

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