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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, Oct-Dec/2002

12/26/2002   eroding retirement -

• A change in traditional pensions, editorial via NYT, A34.
  Middle-aged employee, beware. The Treasury Dept. has proposed new rules on how companies can convert traditional pension plans - which benefit those who stay at one company all their working lives - into more portable ones. It's a good idea[?], but as now written, the rules could dramatically cut older employees' retirement income....
  Trouble is, converting old-style pension plans for current employees is horrendously complicated. In 1999...the government imposed a moratorium on all conversions pending...new rules. The proposed rules, however, are too weighted toward corporate [ie: top executive] interests and insufficiently toward the needs of [ordinary] employees. For example, the fact that companies can avoid age discrimination claims by contributing the same percentage of salary to all employees will not sit well with older workers. They are shortchanged because the value of benefits under traditional plans spikes toward the end of one's working years, after hardly rising early on.
  Equally troubling, the rules require companies to use only "reasonable" interest-rate assumptions in calculating the present value of future benefits. Yet the slightest adjustments in assumptions dramatically alter the benefits owed. By not providing a concrete formula, the government is inviting companies to save themselves a bundle at employees' expense. Such lax vigilance of loyal employees' pensions is particularly unacceptable at a time when top executives at too many companies seem willing to manipulate pension plans to benefit themselves.
  ...Granting employees over a certain age an absolute right to keep their old pension plan would be a sensible adjustment....
  [And what age would that be??]

1. Using a weak pension plan as a cash cow, by Floyd Norris, NYT, C1.
   Navistar International is a grand old company, a descendant of International Harvester, founded by Cyrus McCormick. But if its heritage comes from one of the greatest inventors in American history, these days the most creative things at Navistar seem to be coming from the financial department.
   Consider pensions, for example. Its pension and retiree health plans were badly underfunded even before the stock market tumbled. Now the gap is a yawning one of $2.7 billion. But Navistar found a way last month to take cash out of its pension funds....
   The maneuver impressed Chris Strube, a director at Fitch Ratings who specializes in pensions. "I've never heard of a company selling its own stock to its pension plan," he said, adding that companies often contribute stock to plans, but don't take out cash. "It's pretty ingenious," he added,
   [or ignominious]
   speculating that some companies with difficulties in raising cash might imitate the tactic....
   [This guy obviously hasn't thought this through and his off-the-cuff blurt is a quick example of sh*tting where he eats (in the pension area). There's a reason why this is not done, but if Navistar has already deteriorated so far as to leave its pension plan $2.7B underfunded, this kind of crap can be expected of it. If we're to have an employee stock ownership plan (ESOP), call it that and give employees the choice. A company that forces employees to buy its stock has serious reasons to doubt its stock's value, and demonstrated recently by Enron and other infirm firms. Compare another item today re bankrupt Global Crossing -]

2. Global Crossing chief funds employee plan, WSJ, B7.
   Global Crossing Ltd. Chairman Gary Winnick said he funded a $25 million pledge made to company employees 11 weeks ago. Mr. Winnick's pledge represents the money contributed by Global Crossing employees to their 401k retirement savings plan from the time of the firm's merger with Frontier Corp. in Oct/99 to Global's Chapter 11 bankruptcy-court filing in Jan/2002 [1/29/2002].
   [Again the toxic takeover-bankruptcy slide.]
   ...A spokesman for Mr. Winnick said he intended to distribute it "as soon as possible." It isn't clear how many current and former employees will receive the payment..\..
   Mr. Winnick made the initial pledge in front of a congressional committee investigating the firm, which is facing separate civil and crimiinal probes by the SEC and Justice Dept.
   [No fear - they're both puppets of the concentrated conflict-of-interest in the Bush administration. But it's a significant symptom of the deterioration of the American economy in general and employee leverage in particular that it took a congressional committee to drag out of this guy a pledge to do the basics for his employees.]
   Mr. Winnick himself is under investigation for his sale of $124m in company stock in May 2001....
   [A possibly more upbeat followup/take on this mishigas from Rochester "Frontier" Telephone's point of view, but still some unanswered questions -]
   Rochester workers to get pensions, by David Johnston, 12/21/2002 NYT, B2.
   About 5,500 employees and retirees of the former Rochester Telephone Co. will receive full pension benefits under an agreement reached today. About 95% of some $473m in pension plan assets will be turned over to the Citizens Communications Co., which bought the telephone company from Global Crossing last year. The pension plan had been threatened by the January bankruptcy filing of Global Crossing, which purchased the telephone company, then known as Frontier, in March 1999....
   The pension plan once had a $500m surplus, which Global Crossing creditors wanted to use to pay some of the $12B owed them.... With the stock market's swoon, the surplus became a $105m deficit, leaving nothing for creditors to take.
   [Why are PENSION FUNDS suddenly fair game for creditors to take in a bankruptcy??? Why aren't they COMPLETELY separate, as federal Social Security funds should be. And if the $500m surplus became a $105m deficit, where did the assets of $473m come from? The answer to this last question may be the difference between "funded" and "surplus," i.e., over-funded.]
   Last month the federal Pension Benefit Guaranty Corp., which insures traditional defined-benefit pensions, moved to take over the pension plan in a move intended to force Global Crossing to transfer the pension plan's remaining assets to Citizens....
   [Apparently it worked.]
   About 5% of the pension assets will remain with Global Crossing to cover benefits for workers remaining with Global Crossing....

1. U.S. seeks control of Bethlehem Steel [BS] pensions, AP via NYT, C2.
   The government's pension insurance program said [yester]day that it was seeking control of Bethlehem Steel's underfunded retirement plan in what would be the largest such takeover in the agency's history.
   [So the gov't is trying to stop the CEOs involved in the bankruptcy from carving up among them the employees' too-little-but-still-considerable pension funds? Does this mean that taxpayers have to make up the difference between 'funded' and 'underfunded' while all CEOs involved carry on personally 'overfunded'?]
   The Pension Benefit Guaranty Corp. estimates that BS's pension plan, which covers 95,000 workers and retirees, is underfunded by $4.3B, or 55%.
   [Possibly because of previous raids upon it? If $4.3B is 55%, that means the 45% that still exists is a whopping $3.5B, very tasty-looking to the chubby vultures in America's executive suites.]
   The move could deal a blow to a plan by BS, which filed for bankruptcy protection in Oct/2001 [10/16/2001], to be bought out by International Steel Group....
   [Ah, poor babies. If they can't cannibalize BS's remaining pension funds, they ain't gonna play, so there! So much for the sanctity of American pensions and pensioners.]
   Before BS, the largest claim [upon the govt's pension insurance program] was in March, when the agency assumed $1.6B in pension liabilities from LTV Steel....
   [Oops, dat sounz like we taxpayers are in for it, but...]
   The gov't corporation was created in 1974 to ensure payment of basic pension benefits for workers.
   [1974! Boy, it apparently didn't take long after the babyboomers started overwhelming the job market around 1970 for the sanctity of pensions and pensioners to come under attack to the point of having to drag in big gov't!]
   It is financed largely from insurance premiums paid by companies that sponsor pension plans
   [That must have started making traditional fixed-return pension plans more expensive!]
   and by the agency's investment returns.
   [Yeah, right. All OK until stocks tank.]
   Participants of a plan that is taken over receive, on average, about 94% of benefits they had earned.
   [Why isn't the other 6% reclaimed from the corporate lords at fault? They have, after all, merely damaged the consumer base further. Don't think it went to them? Check out our next story and think again -]

2. Treasury nominee to get big pension - Beneficiary of a trend to give credit beyond years served, by David Johnston, NYT, front page.
   When CSX Corp. calculates pension benefits for its CEO, John Snow, nominated by pResident Bush last week to be Treasury secretary, he will receive credit for 44 years of service to the company, though he has worked there just 25.
   [= a 'trend' only for top executives, not you. And as our collapse story on 12/10/2002 put it, "John Snow was paid more than $50 million in salary, bonus and stock in his nearly 12 years as chairman of the CSX Corp., the railroad company. During that period, the company's profits fell, and its stock rose a bit more than half as much as that of the average big company." Moreover -]
   Moreover, Mr. Snow's benefits will be based not just on his salary, or even his salary and bonus, but also the value of 250,000 shares of stock the CSX board gave him.
   [As we said, talk about a "Snow job"! Top execs are really in a position to declare class warfare when our failure to get the workweek down to levels that balance the worksaving and disemploying heights of our high technology allows a gross leverage-blasting labor surplus.]
   Getting credit for years not worked, and having virtually all compensation counted toward pension benefits, are two of the newest trends in pay for senior executives, said Judith Fischer, managing director of Executive Compensation Advisory Services. She calls such deals "the eternal wealth syndrome."
   [Not necessarily eternal. Giving all the spending power to those who already have more than they can spend is the classic cause of economic depression. We did it all through the 1920s when 'the boys' came home from WW1 and flooded the job market in 1919. It only took 10 years for the overwhelming centripetal forces on money to create the Great Depression a lifetime ago. Now it's taking 20-30 years.]
   Though he has renounced his claim to about $15m in severance benefits, Mr. Snow's pension improvements mean he will collect $2.47m a year [that's $206,000 a month] from CSX until he dies, according to company disclosures. If confirmed as Treasury secretary, he will be paid $161,200 annually [= "only" $13,400 a month].
   [And you think our economy still has a feedback system? Hahahahahahahahaha.... There are sooo many ideas that these guys just can't think - they just cannot even occur to them. Is it any wonder our railroads are in trouble?]
   Among the CEOs receiving pension extras are Gordon Bethune of Continental Airlines and Donald Carty of American Airlines.
   [and our airlines]
   So is Terrence Murray, chairman of Fleet Boston, the nation's 7th-largest bank.
   [And we're getting charged hgiher and higher fees for basic banking services that used to be free? Some banks now charge more for seeing a human teller than they do for using their ATMs and look what's happened to insufficient fees in the last 20 years. Even little East Cambridge Savings in Mass. charges $20. The unsustainable attitude of CEOs is, the consumer is an infinite ocean so we can tax him/her infinitely in an infinitude of ways, and perceive no noticeable difference (- until a "little" recession comes along and the "recovery" never seems to gain liftoff. And now for the real badnews for most Americans' retirement and the future of the American economy and - by extension - America's national security -]
   As Treasury secretary, Mr. Snow...would oversee new pension rules announced by the administration last week that experts say can be expected to strip benefits from older workers while benefiting younger workers and saving companies money....
   [But if the redundancy-borne powerlessness of labor is now so deep that CEOs can shaft older workers with token resistance, why would younger workers have any reason to believe the same won't happen to them by the time they are older?]

3. [meanwhile, a story about you -]
   Bumpy market has many delaying retirement, survey finds - A smaller nest egg, well then, more years in the work force, NYT, C9.
   [Compare our story below from 12/11's Wall St. Journal, "The best advice for retirement - Don't." As we've said before, it isn't primarily the stock market that's doing this. It's hidden labor surplus, powerlessness, the deepening concentration of income and the resulting strangulation of consumer markets and growth. And delayed retirement will worsen the surplus of manhours in the jobmarket and further depress labor leverage, compensation and consumption. We are in a downward spiral that will not stop at the mild 25%-official unemployment level of the Great Depression. Not only is our workweek relengthening for those who still manage to hang onto a full-time job, but our worklife is relengthening also - at the back end - as retirement is delayed. Soon the front end of work life will cave in as well and families will have to go back to child labor a la 3rd world - if there are any families left.]

• [and here's the kind of pressure that 'old-fashioned' concept of pension is under -]
  KeySpan says employee pensions may erode profits, Bloomberg via NYT, C4.
  [A statement like this would have been inconceivable 50 years ago. To oppose pensions and profits? Unimaginable in the labor-employment balance that existed during World War II and the following two decades. We now have such an intense, unrecognized and pervasive national labor surplus, that grew so gradually, like the frog in the lukewarm water that was slooowly brought to a boil, that no danger was ever perceived, or even conceived of. That gradually built-up labor surplus was caused by -
  • robotization of manufacturing and automation of services, including shifting costs onto consumers (eg: sales taxes) and even passing labor tasks on to consumers in all kinds of 'self-serve' at, e.g., gaspumps and now supermarket checkout, and in vending machines, desktop publishing, home copiers, spelling & grammar checking software, etc., etc. (not that worksaving technology is bad - what's bad is our use of it for downsizing-$concentration-underconsumption-recession instead of timesizing-employment-$centrifugation-production/consumption balance)
  • import of employees/jobseekers (ie: immigrants) and export of employers/jobs (ie: Perot's 'giant sucking sound') and re-import of products/services (imports, aka "free" trade, aka proxy immigrants), especially in the 1990s
  • introduction of previously taboo population cohorts into the job market, i.e., housewives and mothers, especially in the 1980s - these cohorts function as immigrants in their effect on the job market and on wages
  • introduction of a population bulge into the job market, aka the post-war baby boomers (births), especially in the 1970s (births function as delayed immigrants in their effect on the job market and on wages)
  Note that the imperceptibly gradual buildup of this labor surplus during relative peacetime has brought about a general devaluation of human life during peacetime, including decreased respect for life - for self, for consumers (markets, eg: salestax), producers (eg: disposable employees), and other lifestyles (eg: Palestinians, Arabs in general are the current targets; going back in time it was Chinese, Russians, Japanese, Germans, French... and internally, Roman Catholics, communists, Jews, anarchists, blacks (eg: Trent Lott et al. currently), orientals, Italians, Irish, children (Cardinal Law et al. currently), elderly (witch hunts), dissenters (Inquisition), etc. and for nature. We wind up with so much anger and contempt for ourselves and others that we're only too ready to start wars, as Bush and Sharon are currently doing. The wars kill off our surplus jobseekers and the resulting perceived labor shortage (actually labor balance) restores our self-respect and respect for others and we're set for another few decades of prosperity and peace. The Timesizing approach makes a major break with this grisly cycle by offsetting technological disemployment in Phase 4 and giving special attention to the 'population variables' (imports, immigrants, births) in Phase 5. Timesizing also foresees its own limits in Phase 6 and points to its own successor-program (and in fact, its own whole line of successor programs).]

• A tip on retirement: Don't, pointer blurb (to D1), WSJ, front page.
  [or the target article -]
  The best advice for retirement - Don't: How to replenish a battered nest egg, by Jonathan Clements, WSJ, D1.
  Dog food may be out of the question. But...if you are close to retirement and you've seen your savings savaged by the bear market, there's a fistful of strategies that will pump up your retirement income. But, unfortunately, none of the options is particularly appetizing....
  
  • Delaying tactics: ...If you are still in the work force, consider pushing back your retirement a few years. What if you are already retired? See if you can get part-time work....
    
  • Buying income [annuities]
  • Bolstering benefits [Social Security]
  • Trading places [to smaller home &/or cheaper location]

• Adminstration proposes rules that can alter pension plans - Critics see decreases for older employees, by Richard Oppel Jr., NYT, C1.
  WASHINGTON...- The Bush administration has proposed sweeping new pension rules that will encourage companies to adopt a type of retirement plan that has been under attack for three years for what critics call a tendency to strip benefits from older employees. The proposed rules, which are to be released by the Treasury Dept. on Tuesday [today, 12/10], describe the steps for companies to avoid age-discrimination challenges [i.e., lawsuits] when they convert their traditional pension plans into what are called cash-balance pension plans. Cash-balance plans tend to benefit younger workers, often at the expense of older workers, and are less costly for companies.
  [This is just appetizers for the same kind of process that Bush is planning for Social "Security."]
  Getting clearance for these pension plans was near the top of businesses' wish list....
  [The businesses that have bought their way to power currently have strengthened the short-sighted aspects of short-term capitalism and further weakened the centrifugal forces on spending power upon which their own markets depend. Thus we can expect the Mother of All Depressions within the decade. As Will Rogers said, "Money's like manure - it's no good unless it's spread around." - because despite all their protestations to the contrary, the wealthy just don't spend it like the non-wealthy. It's the old "marginal efficiency of wealth" that the mainstream economists should be talking about, but most of them, prostitutes to man, aren't. The easiest and healthiest way to strengthen the centrifugal forces on spending power is at least to strengthen them on work, and avoid the kind of concentration of skills and employment that is happening even as our skyrocketing un- and under-employment is getting hidden in record homeless and prison populations, and record disability, forced multiple part-time and early retirement.]

• Retirement nest eggs: Made to be broken? by Michael Casey, WSJ, A2.
  Opponents of the Bush administration's plan to partially privatize Social Security like to tap into taxpayer anxiety over corporate misdeeds: Can Wall Street bankers and crooked CEOs be trusted with your retirement nest egg?
  [A: American retirement nest eggs are already partially privatized. It's called 401k.   B: We "like" to tap into anxiety over Wall Street and CEO crookedness, especially in terms of looting employee pension funds, because so much of it is going on (see long list of examples below on this page and its archives) and Wall Street is sooo erratic.   C: How many times do we have to answer this question? It was answered with a resounding NO during the Great Depression and that's half the reason why Social Security was set up in the first place.]
  But a more pertinenet question is whether taxpayers themselves can be trusted....
  [No they can't. And that's the other half of the reason why Social Security was set up. So leave well enough alone and quit trying to push us into relearning the hard lessons of history over and over and over and over and over again! If you're going to have any kind of universal mandatory retirement, you've got to have some kind of universal mandatory funding for it. Period.]

• Future retirees' benefits clouded - One in 5 major firms may pare health coverage, according to new survey, by Peter Landers, WSJ, B6.
  About one in five large employers is very or somewhat likely to end health benefits for future retirees, according to a new survey.... About half of [these] companies [currently] pay for retiree healthcare.... People who have already retired are likely to hold onto their benefits but may bear more of the cost.
  The figures come from a survey of 435 companies that have more than 1,000 employees and currently offer health benefits for retirees. It was conducted by the Kaiser Family Foundation, a nonprofit research group [no relation to Kaiser Permanente], and consulting firm Hewitt Assocs....
  [In the shorter term, this development reflects the fact that, as the long-workweek-based national and global labor surplus worsens, the deterioration of labor's bargaining power continues to deteriorate, and so do national and global living standards and, even for the rich, investment stability and personal security. Pressure is building to either reduce the labor surplus by war, or more intelligently, to flex up the arbitrary, rigid, stifling and unenforced 40-hour workweek maximum and make the maximum workweek vary inversely with unemployment, comprehensively defined - after redesigning "overtime" to target and trigger training and hiring.   In the longer term, this development reflects the unsustainability of any standard worklife maximum - that is, the concept of "mandatory retirement" in terms of blank-check claims of retirees on society is insupportable in the long term and a roadblock to the continued development of life-lengthening technology to the point of functioning voluntary mortality (and immortality), now a realistic goal for advanced economies as biogenetics accelerates progress in human spare-parts technology and grafting. On the other hand, the continued development of worksaving technology, once coupled with worktime-cutting worksharing, will make indefinite self-support less and less and less burdensome.]

• Pension agency plans filing to aid Global Crossing workers, by David Johnston, NYT, C2.
  ROCHESTER NY...- A tug of war over the pension plan for 5,500 telephone employees and retirees who were caught up in the upheaval of Global Crossing appears to be coming to an end. And union members who fought to protect their benefits may win for a curious reason: the drop in the stock market.... The plan has been frozen since 1996, when workers stopped earning additional benefits..\.. When the bankruptcy was filed..\..last January..., the pension fund had a $500m surplus.... The company and its creditors [want to liquidate] the surplus to offset the company's debts..\..after its insiders had cashed in $5.2B of stock \before seeking\ refuge in federal bankruptcy court...from creditors owed $12B....
  1,400 members \of\ Local 1170 of the Communications Workers of America...participate in the plan \and they\ lost the majority of their 401k savings, most of which the company required them to hold in its shares [as stocks fell] and blocked them from selling. The Pension Guaranty Corp., the federal agency that protects traditional defined-benefit pension benefits, said it would ask the US District Court in Manhattan on Monday to terminate the pension plan, which Global Crossing owns.... The Agency's filing on Monday makes liquidation less likely....
  [David Johnston's garbled prose does not make it clear wherein the Agency's "termination" of the pension plan differs from the company's desired liquidation thereof. We'll just have to take his word for it that the Agency's plan protects employee interests and the company's plan doesn't. At any rate, the story is another example of the insecurity of traditional American pensions and also 401k's, and the coming further collapse of consumer spending in what has just (as of 12/13 with the expansion of the EU to 25 members) become the world's second biggest economy.]

• The pension-plan pit: Major companies face shortfall of billions of dollars, by Cassell Bryan-Low & Robin Sidel, WSJ, C1.
  [Just get it from your overpaid top executives! Note today's revelation -]
  Buried treasure - Well-hidden perk means big money for top executives - Deferred-compensation plans add to company liability but are poorly disclosed...- {What's Wrong? - 3rd in a series}, by Ellen Schultz & Theo Francis, WSJ, front page.
  [Back to "The pension-plan pit" -]
  Ford Motor Co. and GM Corp. aren't the only big companies seeing cracks in their pension-fund nest eggs.
  [Who said they were?! We've been hearing for months about Enron and Polaroid....]
  ...A new study by CSFB...which looks at the 360 companies in the S&P500...that have pension plans, estimates that, by year's end, the companies will have assets to cover only 79% of their liabilities. All together, the companies face a $243 billion pension shortfall, based on estimated obligations of $1.15T and assets of $904B.... It is the first collective shortfall for the S&P500 companies since '93, according to another new report, from UBS Warburg.
  [So what did they do then? They must have recovered temporarily, thanks to the Internet bubble, because -]
  ...Many companies enjoyed \a pension\ contributions holiday [in] the late '90s...as a result of the long bull market which is now grinding to a half. And with the stock market down so sharply from its peak, it will take an unusually strong rebound for the companies to go back on holiday anytime soon....

For earlier retirement stories, click on the desired date -