When Big Blue, as IBM was once called, decides it’s time to start shedding pensions, the stampede is definitely on. A couple of weeks ago this company, which was once famous for taking good care of its employees in return for a Stepford-like obedience, announced it was freezing its pension program.
Until now perhaps no more than one large corporation in ten had abandoned the pension system, but since big business tends to rush pell-mell together with whatever is the fashionable idea of the hour, the IBM announcement is a harbinger of the disappearance of almost all retirement pensions in the private sector.
The big shots at the top–the people whose titles are designated by abbreviations like CEO, COO, CFO, CMO, etc.–will continue to enjoy some very golden years before they shuffle off this mortal coil. Others below them should brace themselves. Legislation is making its way quietly through Congress that will permit employers to cut, slice, hack and in a dozen different sneaky ways lessen the value of pensions.
Public sector employees are not safe from worry but, since they are usually organized and pull some political weight, their pensions should last a little longer. Everybody else in the private sector had best get ready to wave bye-bye to the idea of a reasonably carefree retirement during which the check comes in once a month and the big problem is whether to spend it on a long vacation or treat the kids to a new car. That’s over, folks.
There are a variety of wrinkles to pension freezes. Some consist of not offering a pension plan to new hires; others, like IBM’s, stop all pensions where they are now so that an employee will get on retirement whatever pension he has owing at the time of the freeze, but it will no longer grow in value. This is murderous on older workers, since pension benefits are based on the largest annual salary in the years immediately before retirement.
In the future employees will get whatever is coming to them under Social Security (assuming Republicans do not “reform” it out of existence, as they would dearly love to do), plus whatever is in their 401K plan on the bewitching day when the gang at the office takes them out for lunch to bid them adieu.
Young people may welcome this change. Change is always for the good, isn’t it? The poor things have had their heads filled with talk that by managing their own retirement funds themselves, they will get a better return on their money than Social Security or a company pension. Let’s hope they do, although, propaganda aside, the odds are not good.
Regardless, most people will be left adrift in the seas of high finance alone with their 401(k)s or Roth IRAs or whatever retirement account they have chosen for themselves. Now all they have to do is avoid unforeseen, catastrophic bills or develop the kind of self-control needed to save money to put into the account. Once they have gotten it into the account the struggle to know what do with it commences.
For a fee, and often an impressive one, they can hire a financial adviser. It helps to get one who is (a) competent, and (b) not a crook. How does one find (a) and (b)? As soon as that is known, the information will appear in this space.
Employees can also do what are called the safe and sound things, like “diversify” your assets, something easily done if you happen to have an MBA. If not, you might prefer a mutual fund. No problem there. There are thousands of them, and there are even funds of funds. Just close your eyes and pick one and keep your eyes closed until retirement day, when you may peek to see if there’s anything there.
The explanation offered by companies terminating their pension programs is the competition. They say the competition’s employees are younger and/or the other companies don’t offer this benefit. It used to be that corporations used the benefit pension to keep employees and hold down turnover. The rationale for the huge pensions given the top six or seven executives is: That’s what it takes to hold on to them.
Today’s executives with pensions show no interest in retaining their employees. Everybody below a certain line is replaceable. They would, if the law permitted, make three-quarters of their labor force temporary workers, with no beneficial hooks to keep them with the company.
If that seems short-sighted and antithetical to the long-range good of the company, it probably is, but modern CEOs hang around only long enough to get their money and get out. Their average stay is about five years, and then they’re floating out the door on their golden parachutes.
Nicholas von HoffmanNicholas von Hoffman, a veteran newspaper, radio and TV reporter and columnist, is the author, most recently, of Radical: A Portrait of Saul Alinsky, due out this month from Nation Books.