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The Screwing of the Average Man (cont) 26.03.2004 [21:01] 9 Pensions: The Broken Promise Pension plans are an intricate and reasonably boring topic, at least until that day when, to our surprise, we turn sixty-five and when, to our even greater surprise, we find that the promised pension isn't waiting for us. No gold for the golden years; nothing but Social Security. No little home in the country or condominium in the sun - only the trailer park. The pension disappeared somewhere along the years, and it's too late now to go back and look for it. It happens to up to nine out of ten of the 23 million people who think they are enrolled in private pension plans - why? The easy answer is that you didn't read the fine print: another case of screwing by complexity. The hard answer is that even if you read the fine print, you'd still lose the pension. Either way, the odds against you are nine to one. To understand how this screwing works, it is best to begin with the motives of the person who administers it - the employer who set up the pension plan. When private pension plans first appeared in large numbers, during the Second World War, employers conceived of them as a tactic to hang on to their workers at a time when wages were controlled and labor was scarce. By now, pensions have blossomed into a major industry that supplies great benefits to employers and banks, some pickings to a few unions, and a living to the parasitic pension administration industry that has attached itself like a $4-billion leech to the nation's total of $200 billion in pension funds. To the employer, the primary value of the pension fund is that it offers him an opportunity to con his employees out of wage increases in return for a promise he need not keep. The employer says: if you will give up all or part of a wage increase, I'll put some money aside in a fund, and I'll pay you a pension, in addition to your Social Security, when you retire. The employer gets the hard cash, and the employees get the promise that will be broken: all of them give up the raise, but only a very few will ever collect the pension. From the employer's point of view, the question is not so much the amount of the pension he is promising as it is how many people he will eventually have to pay off. If he promises $100 a month to 100 employees, and all of them collect, his promise someday will cost him $10,000 a month. If he can cut the number who collect down to ten, his bill will be only $1,000 a month-even though he is making the same promise of $100 a month. If he is particularly skillful, he can get down closer to the magic number of zero employees collecting - and then it doesn't matter how much he promised. Meanwhile the employees have given up a much larger amount in foregone wage increases in return for a promise that is worth about as much as most other lifetime guarantees. All the employer has to do is convince enough of his employees to go along with the scheme, and in this task he can usually count on the help of the union leadership - if there is a union; if not, he can screw his employees without going to the trouble of corrupting their representatives. He can also be confident that neither government nor anyone else will interfere to make him keep the promise. The employer does put some money aside in a pension fund, though typically not enough to finance pensions for any great number of employees. He doesn't mind doing this, because government has declared his contribution tax-exempt, making the pension fund a better kind of money than profits, which are taxed. Since in most cases the employer has a free hand in administering the pension fund, he can use it for any worthy purpose of his choice-like investing it in the stock of his own company; if the stock collapses, it's the employees' loss, not his. Or he can turn it over to his favorite bank to invest, an act which will make him a preferred customer at the bank. The bank in turn will use the money to further its own projects. Thus that $200 billion in pension reserves has become a giant slush fund flowing through the economy at the whim of employers and bank trust departments, and, in a few cases, union officials. The employees for whom the money is supposedly in trust - and whose lost wages it represents - have no say in its use. In these circumstances, it is not surprising that so few employees ever collect on the pension promise. Just how few is not exactly known. Not long ago Peter Flanigan, the business representative in the White House, was able to say that the problem cannot be considered overwhelming, despite the very real pathos of the few hardship cases. Since then the evidence has been accumulating. Two studies of plans covering ten million workers found that in one case 4 per cent, and in the second, 8 per cent, of the retired employees were collecting their anticipated benefits. At AT&T, 3 per cent of the women who left over a period of twenty years collected a pension. Other surveys show one in six and one in ten collecting. In this context, Ralph Nader's view that at least half the people covered by pensions will never collect a penny is relatively optimistic. The figure used here, that the odds against the employee are nine to one, is a compromise among these varying estimates. Some of the victims have achieved a minor fame in the pension literature, where their names appear and reappear like those of martyred saints on the church calendar. Here are, mainly from Ralph Nader and Kate Blackwell's You and Your Pension, some of the best-known martyrs and the ways in which they were screwed out of their pensions: JAMES TYLER: a construction worker from Lakewood, California. He belonged to the same union for thirty-one years. After he had worked as a member of one local for several years, he was told he would have to change locals to take a job six miles from his home. When, on retirement, he applied for his pension, he was told he wasn't eligible because - after thirty-one years - he didn't have enough time in with either union local. Under the rules of that plan, an employee lost all his accumulated credit when he switched from one union local to another. JOSEPH MINTZ: he has been in aerospace work for more than thirty years. He has no pension rights because he has always been laid off before reaching the ten-year minimum for becoming eligible for pension. One company laid him off after nine years and ten months. (Another man in a similar situation wrote Senator Jacob Javits that after nineteen and a half years with one company he was let go for cause. I guess the cause was because at 20 years I would have been en_title_d to the pension plan. ) HARRY OAKES: he worked in a department store in St. Paul, Minnesota, for fifty-two years. He retired at sixty-six. He received his pension for thirteen months. Then the company went bankrupt, the pension fund disappeared, and neither Oakes nor anyone else got any more pension payments. IRIS KWEK: she was laid off, after working for the Anaconda American Brass Co. in Detroit for thirty consecutive years, when she was forty-eight. She was not en_title_d to a pension - in that plan, you had to be sixty-five, or sixty with fifteen years employment, to be eligible. Anaconda's personnel director explained that the plan is not designed to provide benefits for those who leave the service of the company while still employable. (In an unusual variant of the carom effect, Iris Kwek also got screwed out of her chance to complain. She passed up a chance to testify before a congressional committee because the company told her it would find her another job. She learned that there was to be no other job - when it was too late to testify.). STEVE DUANE: he went to work for A&P at a Jersey City, New Jersey, warehouse at the age of nineteen, and worked there for thirty-two years, with time out only for the Second World War. When he was fifty-two, A&P decided to close the warehouse, putting Duane out of work. Duane didn't get a pension - you have to be fifty-five to qualify in that plan. CHARLES REED: he went to work as a coal miner for Jones & Laughlin Steel Corp. at twenty-one. After twenty-three years, he was laid off and never called back. Reed finally found work outside the mines. When he reached retirement age thirteen years later, he applied for his pension, for which miners become eligible after twenty years. He found he was en_title_d to no pension because of a provision (which did not appear in the booklet describing the plan) that those twenty years had to have been worked within the thirty years preceding his application for benefits. Reed began looking around south-eastern Pennsylvania and soon found 1,200 other miners who had worked the required twenty years and gotten no pension. JOSEPH ORIGLIO: he worked for twenty-three years in shoe factories and belonged to a pension plan administered by his union, the United Shoe Workers of America. He lost his job, because of automation, at the age of fifty-five. He was unemployed for three years and ten months, and was unable to pay his union dues during that time. Then he got a job again in the shoe industry. He offered to pay his back dues, but was told only to pay a fifteen-dollar reinstatement fee. He worked for another seven years, then retired and asked for his pension. No pension: the plan required twenty-five continuous years. It permitted a break because of unemployment of up to three years - and Origlio had been out ten months too long. Most of these screwings result from the employer's effort to hold down the number of people who qualify for pensions - without the employees becoming aware of what is going on. Making the ground rules as complex as possible is the obvious strategy; lawyers are called upon to practice the expert's art or putting the plan into language that no one can understand. One pension expert testified that I don't think there's a plan I've
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