Many news agencies carried the The Washington Post (12 June) article entitled “Human Toll of a Pension Default”, referring to the effects of the elimination of the United Airlines pension fund upon workers. Showing the photograph of Ellen Saracini, widow of pilot Victor J. Saracini, who died when his flight 175 crashed into the World Trade Center on September 11, 2001, the article added: “Now she stands to lose more than half of her widow’s pension in a very different kind of crash – United’s default of its $9 billion pension obligations.. the largest in U.S. History.”
The default of United’s pension fund is not only the largest in U.S. history. It is, above all, an advance of what is to come: “This ruling could be the prelude to a succession of similar decisions in airline transport, the automobile sector and in industry as a whole” (Le Monde, 11 July). Because according to an independent study, 81 percent of the private corporate pension funds are underfunded; among them are to be found monsters such as GM, Ford, IBM, Motorola, US Steel, and Lockheed Martin (ídem). Actually, the percentage of funds with financial problems is even greater since “the corporations voluntarily overestimate the assets of their pension funds” (ídem).
A year ago, the bourgeoisie was saying that the pension fund crisis had already been solved: “Nothing like a recovering stock market to boost the funding of many pension funds” (CFO Magazine, 4 Aug 04). But during 2004, “more than 40 bankruptcies in the steel industry and those of 5 airlines have contributed to a deficit of 23 billion dollars of the PBGC (Pension Benefit Guaranty Corporation)”, a deficit which Congressional analysts foresee reaching 71 billion dollars in the next decade.
The PBGC is a public body in charge of paying retirees the benefits due them from private pension funds when the latter, such as that of United, declare default. It already pays the pensions of more than a million workers. In 2004, the number of companies whose pensions were paid by this body jumped from 155 to 192. The passing of a pension fund over to the PBGC is, for the workers, a confiscation of their contributions: the insurance pays a maximum pension of 45,000 dollars annually, a much lower figure than the pension fund commitment (which stands in relation to the wages of active workers).
The Government Accountability Office estimates that “U.S. companies underfunded their plans by about $600 billion last year” (Denver Post, 12 Jun). Even the “optimistic” CFO article admits that “the possibility that more big airline defaults will hit the federal insurer has some experts fearing a pension crisis akin to the one accompanying the collapse of the savings and loan industry of the 1980s”. Associated Press (7 Jun) says: “The pension funding problem recalls the savings and loan crisis of the 1980s, when hundreds of thrifts became insolvent and were taken over by the government. A congressional study in 1996 put the price tag for the S&L bailout at $480.9 billion.”
The cause, explains The New York Times (6 Jun), is very simple: “More than half of the nation’s biggest companies with pension plans sailed through the boom of the late 1990s and the bear market that followed without putting any cash into their pension funds. They used loopholes in federal law to skirt a requirement for annual contributions”. The magazine Forbes (7/7) adds that “out of 365 index members with defined benefit plans, 311 left the plans underfunded at year’s end”. This conscious underfunding of the pension funds anticipates default: “It does not mean that all companies may not be in conditions to pay pensions, but rather that they expect, one day, not to” (Le Monde, 12 Jul).
The magazine explains what will occur in the best of cases: “Contributions five years ago represented just 2 percent of cash flow. That left plenty of money for new workers’ salaries and equipment purchases”. But last year contributions represented 10 percent “leaves a lot less”.
Bush has proposed a new “reform” bill which would force an increase in corporate contributions to their own funds and to the PBGC, but which would also oblige plans undergoing deficit to go into default. The companies say that if they are obliged to pay their contributions, they will have to declare bankruptcy. For example, Gerald Grinstein, president of Delta Airlines, speaks of the possibility of taking the company into bankruptcy within the next four months (Cincinnati Enquirer, 8 Jun).
But pensions are only one aspect of the U.S. “social security crisis”; another is the health care funds. GM declares that financing the health care plans of its employees and retirees adds an additional cost of 1,500 dollars to each automobile produced. It is pressuring the trade union bureaucracy to accept, in the next contract, substantial reductions in health care plans. “If we do not reach agreement, they threaten, we will have to consider other alternatives; the most extreme is to declare the elimination (of the health care plan)” (Le Monde, 12 Jun).
Now that the situation has become “untenable”, the U.S. bourgeoisie has now discovered that “the principle of linking health plans to jobs is arguable and perverse.” It did not, of course, think so when the number of beneficiaries was low and they pocketed the difference between the wages and salaries deductions and the services provided.
The trade union bureaucracy refuses to put forward a plan of struggle. The most recent declaration (30 Jun) of the United Master Executive Council of the Association of Flight Attendants (http://www.unitedafa.org/) -which denounces that the default was allowed in exchange for United’s 1.5 billion dollar payment to the PBGC-, shows a preference for “challenging the company and the PBGC in court” before opting for direct actions, and says it will consider a call for a strike “if that’s the only way to persuade the Company to restore our pension plan.”
The incapacity of the U.S. bourgeoisie to face its pension and health care commitments to its workers is the manifestation of the weakness in the rate of profits. Its recovery demands the liquidation of historic gains of the U.S. working class. As the Prensa Obrera Nº 905 article (http://www.po.org.ar/poen/2005/poen905/poen905007.htm) entitled “General Motors: Plants to close and 25,000 lay-offs” said, “The world crisis places the US proletariat before fundamental clashes.”