April 2012
March 19, 2012

Why we defend pensions

Author: Richard E. Casagrande Esq., GeneralCounsel
Source: NYSUT United

Should ordinary working people be able to earn a secure retirement? We say yes but, unfortunately, the secure retirement working Americans came to expect in the last half of the 20th century is more elusive in the early part of the 21st.

The new Tier 6 will provide significantly diminished pensions for most future public employees. NYSUT and its labor partners were able to thwart the governor's proposal to make future public union workers choose between a pension and a 401(k)-type benefit. But it would be foolish to assume that this proposal will not be renewed, as part of an effort to place public employees' retirement security in the hands of Wall Street. To understand why NYSUT opposed this plan, it is important to understand the history of retirement security.

Prior to the 1930s, retirement security was more or less a matter of good fortune. The wealthy could look forward to decent housing and medical care in their old age. Others might have the support of their families, religious institution or charity.

Government programs for the elderly were non-existent, ineffective — or worse.

In 1854, President Franklin Pierce vetoed the first federal legislative effort to provide a social safety net, finding "... no authority in the Constitution for making the federal government the great almoner of public charity. ..." For the next 80 years, support for the elderly poor was left to states and counties. Many established "poor houses." A 1925 federal report found that living conditions at such facilities were often abhorrent: vermin-infested, dilapidated housing; no fire safety; poor sanitation; and totally inadequate health care.

It was not until the Great Depression, and the enactment of New Deal legislation, that things began to change. The 1935 National Labor Relations Act gave employees the right to form and join unions and, through collective bargaining, to obtain decent wages, including pensions. Through savings and a company pension, the essentials of a secure retirement could be earned. And, the Social Security Act finally guaranteed retirement security through payroll taxes and employer contributions. In upholding the constitutionality of the Social Security Act, Justice Benjamin Cardozo, writing for the U.S. Supreme Court, noted: "the hope behind this statute is to save men and women from the rigors of the poor house as well as from the haunting fear that such a lot awaits them when journey's end is near."

Thus, working Americans were truly promised a new deal: They could earn retirement security through personal savings, an employer pension and Social Security benefits. These elements were intended to form a sturdy, three-legged stool upon which ordinary people could be assured of a dignified retirement.

In the last 30 years, every leg of this stool has come under assault. As private-sector unions have been relentlessly attacked, private-sector wages have remained stagnant, even as corporate profits and CEO compensation reached all-time highs. Private-sector defined benefit pensions have all but been eliminated in favor of 401(k) plans, which were intended to supplement, not replace, pensions.

Replacing defined benefit pensions with 401(k)s has considerable risk. While defined contribution plans may be appropriate for some employees, particularly those who are highly compensated or who plan frequent career moves, most workers do not earn enough to adequately fund their 401(k)s. Further, the growth and security of a 401(k) is dependent on the success of the financial markets, or even of the particular company for which the employee works. In the recent financial crash, many 401(k) investors saw their retirement nest eggs decimated.

Social Security is also threatened. It has become fashionable to describe Social Security as an "entitlement" rather than as the earned benefit it is. There have been and are calls to privatize and profitize this enormously successful program.

The assault on retirement security has spread to the public sector. The claim is that public-sector workers should not have better retirement security than those in the private sector and, as in the private sector, defined benefit pensions should be replaced with 401(k)-type benefits. The problem, again, is that 401(k)s do not guarantee retirement security. Rather, they provide a possibility of retirement security if, at the time of retirement, the market has performed or is performing well. Those who witnessed the savings and loan crisis of the late 1980s and early 1990s, the dot.com bubble of 2000, the collapse of Enron, Worldcom and others in 2002, and the banking crisis of 2008, know that trading defined benefit pensions for defined contribution plans is an enormous gamble.

Politicians should not be allowed to get away with saying public-sector defined benefit pensions should be taken away because many in the private sector have lost them. The race to the bottom for the middle class has gone on long enough. Instead, politicians should be asked why our country and state pursue economic and tax policies that favor Wall Street and the very wealthy, while the wages and pensions of the middle class — private and public sector — get hit time and again.

We fight for pensions because we believe that all hardworking people deserve a chance to earn a dignified retirement, as well as the peace of mind that comes with knowing that their retirement is secure. The fight for a secure retirement goes on, and it can be won. We enjoy defined benefit pensions because our predecessors fought for them. Those who come after us deserve no less.