Community & Editorial
When politicians argue over plans, they should seek out the Methodists for some advice
Eight years ago, while thousands of corporations were shutting down their retirement plans, the United Methodist Church decided to go back to the future and take a lesson from its “Book of Discipline.” The book guides the church in employment practices and states that the church “discharge our fiduciary duty solely in the interests of the participants and beneficiaries, using care, skill, prudence and discipline.” With this in mind, the Methodist Church established a defined benefit pension.
What is a defined benefit pension? It is a plan for retirement that covers all employees in a company. You earn this retirement as you work. You can rest assured that when you retire, you will get a certain amount of money each month for the rest of your life. It won’t get you rich, but it gives you both financial security and peace of mind. That dovetails well with Methodist beliefs, and it fits nicely with our national belief system, too.
Almost all of us are in a defined benefit pension. It is called Social Security. It’s the punching bag of the political and financial elite in their assault on entitlements. Never mind that these entitlements are earned. Or that Social Security has been generating surpluses for three decades. Or that it is the most efficient and most effective program to insure retirement security. Or that, unlike almost all other pensions, you can be sure that your Social Security payments keep up with inflation.
Social Security was not meant to provide all our retirement income. That is why unions bargained for retirement plans with big corporations, and why corporations accepted and funded defined benefit pensions as a traditional part of employment. That deal is now broken: 85,000 pension plans have disappeared since 1985. These defined benefit pensions have been shut down and replaced, if at all, with deferred compensation, also known as a 401(k).
How has that worked out? Not so well. If you have a 401(k), just look at your monthly reports over the past five years, and you can verify the gains and losses in its value. You might get a bit worried when you think about retiring and want to make sure you have enough income. The typical value of these accounts is $18,000. That’ll get you $80 a month over the course of roughly 19 years.
Why are these annuities so small? It doesn’t take a rocket scientist, an aerospace engineer or a Boeing manager to answer this question. Some employers make no contributions. Some do, but they all contribute less than what they would for defined benefit pensions.
This helps explain why the members of the Society of Professional Engineering Employees in Aerospace voted down the recent contract offer from Boeing. Boeing proposed to replace defined benefit pensions with deferred compensation for new employees. The impact of Boeing’s contract proposal would have been to cut its contributions for retirement for these new employees by about 40 percent. Putting the retirement eggs of these employees into deferred compensation leaves their accounts at the mercy of the stock market. Even as they gain value, they also create long-term retirement insecurity.
If an employer wants to guarantee retirement income, then it is a lot less expensive through defined benefit plans than through deferred compensation. That’s because with deferred compensation, each individual has to have an account that separately anticipates his longevity. Each individual account has to contain enough to support a long life for each employee.
Compare this to defined benefit pensions. These pensions pool all the funding to finance an average employee’s retirement years, and this takes care of all retirees. They can depend on their monthly stream of income, no matter how long they live. For instance, at Boeing, if you work 20 years, the minimum retirement benefit is $1,660 a month. The “herd” of the defined benefit pension protects the individual retiree.
Unfortunately, what corporate elites focus on is the short term, three-month bottom line. With deferred compensation, these companies can avoid all risk, jettison their fiduciary responsibility and shift some costs onto employees. While that goes over well on Wall Street, it does not provide a good model for long-term profitability in an industry that cannot afford one engineering, machining or computing mistake.
Would you choose to fly in a plane designed, built and tested by a demoralized and angry workforce, or by well-compensated engineers, technicians and machinists who are proud of their work and not worried about how they will make ends meet when they retire? I would choose the latter, especially when I am 30,000 feet in the air. I am with the Methodists.
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