EXECUTIVE DIRECTOR'S REPORT
It's the Deficit, Stupid!
The Future Looks Continually Difficult for Healthcare and Retirement Plans
by Ron Kutak
 Ron Kutak |
Our rising federal deficit, combined with poor market returns and rising health costs, has created a crisis in our public and private health and pension systems.
As the deficit continues to grow, time is not on the middle or working class family’s side. Candidates continue to lie to people who appear to want to be lied to, while the problem worsens. When Al Gore was running for US President in 2000, he promised to put the Social Security surplus in a “lock box.” In 2004, no one is promising that.
The first of 77 million baby boomers will begin to retire in four years, increasing the pressure on our Social Security and Medicare programs which are already in dire straits. Pharmaceutical companies have a virtual monopoly in the United States, with no price competition from any other country. Schemes to re-import prescription drugs from Canada have been discussed, but even if the powerful drug lobbies were neutralized the actual savings would be small.
So far, both parties have proposed plans for reducing the deficit that no independent expert or authority considers viable. No credible authority of which I am aware denies that major belt-tightening is called for; a huge bill needs to be paid and this bill must be paid by a combination of tax increases and benefit cuts. Regardless of one’s political leanings, or where money is spent, continued spending increases–– coupled with tax cuts––will only make the problem worse. Martin Anderson, a former economic adviser to Ronald Reagan and a Hoover Institute scholar, actually said recently, “All other things being equal, you never want to run up a big deficit, but things are never equal, and so you do.” Whatever it is he means, his statement is a cavalier apologia considering the consequences.
Former Treasury Secretary Paul O’Neill commissioned a survey that outlined what would be necessary to fund the projected fiscal gap. Here were some of the options: 1) Double the payroll tax, and raise income taxes by two-thirds, immediately and forever; 2) cut Social Security and Medicare benefits by 45 percent, immediately and forever; or 3) eliminate virtually everything the federal government does, outside of the transfer of payments to the elderly. Not a very pretty picture.
These same pressures exist in the private sector. Less than 20 percent of the working public in the US has a defined benefit pension plan in which to participate, and many of the plans that do exist are severely under-funded. Everyone is aware of the problems the US steel industry has left behind for its former employees. Now the airline industry is facing many of the same issues. In the bankruptcy courts United Airlines has recently sought protection from having to make its legally required pension contributions.
When a company not in bankruptcy does not make its legally required contributions, the Pension Benefit Guarantee Corporation (PBGC) can effect a lien against the company’s assets. United recently announced it would not pay roughly 500 million dollars due its pension plans this year. US Airways announced in October that it will not make its required 100-million-dollar contribution. Bankrup-tcy should not allow companies to escape their pension and retirement obligations, yet bankruptcy courts are currently the battleground on which companies fight for a way to abandon their benefit obligations. The United and US Airways cases promise to be costly and lengthy, but in any event, the PBGC cannot guarantee all potential bankruptcy failures without going broke itself.
Over the past 20 years, the number of defined benefit plans in the US has fallen by 75 percent––to just over 31,000 plans today. No new plans of any significant size have been established in recent years, and pension consulting firms report that approximately 30 percent of the existing defined benefit plans have been frozen, allowing no new accumulation of benefits. We are fortunate to work in a healthy industry when compared to the steel and airline industries. Our residual stream remains a vital engine driving our health plan. We are also looking forward to the increase in our defined benefit plan agreed to in the last re-negotiation of our Basic Agreement.
Nevertheless, our plans are far from immune. Rising health costs create pressure on our plan continually to find money to maintain our current level of benefits. In this day and age, a health plan that does not require individual contributions toward the premium is almost unheard of, let alone one that covers families and is entirely employer-funded. Every negotiation or re-negotiation in which I have participated lately puts the union in the position of finding health plan money before getting to any other issues, and the establishment of new defined benefit plans has unfortunately already become something of the past. Defined contribution plans, 401Ks, annuities, etc. are now the rule, transferring all retirement risk to the employee.
Organized labor has a big responsibility and a very difficult job to do. We must move beyond the sort of political rhetoric to which we were treated during the just-concluded election season. Instead, we must face the economic pressures realistically. In this way we can ensure, to the best of our ability, that our retirements are protected and not pillaged, and that quality heath care remains available for our members––both while they work and after they retire.