Detroit and Illinois aren't the only ones stealing earned benefits.
AlterNet / By Steven Rosenfeld
Across
America, states, counties and cities are taking steps that will make retirement
for ex-public employees much harsher. Courts, politicians and corporations are
all working together to chip away at deferred wages: reducing pensions or
eliminating promised healthcare, or both. Said simply, they’re looting
retirements and pushing people toward poverty.
This is
the course unfolding in
federal bankruptcy court for the city of Detroit. It is what the Illinois
Legislature passed last
week in a giant pension reform bill that excluded the city of Chicago, whose
red ink reckoning comes next year. It’s what’s before California cities that
have filed for bankruptcy, or are seeking voter approval to cut into retirement
benefits, such as Stockton, San Bernardino, Riverside and even wealthy San Jose.
In these
and other government jurisdictions, the foremost question is not why legions of
elected officials have failed to provide for the employees who did their jobs
and made the cities function. Instead, the question seems to be how much they
can plunder earned and pledged benefits, so they can avoid raising taxes or
cutting services.
“News
leaking out this week from the Motor City tells how the enormous gap between
pensions workers earned and the money set aside to pay for them will be
closed,” wrote David
Cay Johnston, a Pulitzer Prize-winning reporter. “By stealing from workers.”
The
plundering of private sector pensions by corporate executives is nothing new.
Books and columns by
Johnston and other Pulitzer Prize winners have
detailed how most S&P 500 companies have diverted mountains of cash from
employee pensions to make their quarterly earnings look bigger, boost stock
prices and fatten their annual bonuses—all unconscionable and corrupt acts that
were perfectly legal, says Johnston, thanks to a Congress that rewrote the
legal fine print at the behest of corporate lobbyists.
But the
newest development in America’s unfolding retirement security crisis concerns
public employees—people who worked in schools, public safety departments, etc.
and often are exempt from Social Security because they have other public
retirement plans.
For years if not decades, top fiscal managers in a mix of
cities, counties and states didn’t put away what’s now hundreds of billions of
dollars for civil service workers. Now, the same class of public sector
executives are taking steps to cut these retirement packages. The question is
not whether the cuts are coming, but how will they unfold.
Take
Detroit’s bankruptcy filing. Beyond the exceptionally nasty politics
surrounding the largest municipal bankruptcy in America, what was pivotal last
week was a ruling by the federal bankruptcy judge that classified the promised
retirement benefits as “unsecured” debt. That’s a subordinate class to “secured” debt holders, such as
investors who bought bonds, and it means that the Court can order reduction in
retiree benefits. The fact that Michigan’s state Constitution forbids this kind
of breach of contract did not apply, the bankruptcy judge said, because a
federal proceeding trumps state law. Without getting lost in the legal details,
the big question is how big a
hit will Detroit’s retirees take. A pension in the city averages $19,000 a
year.
“This
decision sets a terrible precedent,” said Karen
Friedman, executive vice president and policy director for the Pension Rights
Center. “Allowing a city to cut its retirees’ pensions is a signal to other
cities across the country that they don’t need to fund their pensions
responsibly and that they can renege on these promises when they run into
trouble… These are not big pensions.”
What’s
up next for Detroit is that the city’s emergency financial manager—appointed by
the state’s Republican governor—will come back to court with a schedule of
proposed benefit cuts and other renegotiated contracts. That’s exactly the stage the
California city of Stockton is at in its bankruptcy.
It proposes to
maintain its pensions but end retiree health benefits, raise the city’s sales
tax and pay some bondholders 50 cents per owed dollar. In another California
city, San Bernardino, the process is further along, with the city already
filing its plan to shortchange creditors and some of them—notably the
California Public Employees Retirement System, or CalPERS—objecting in
court.
Outside
bankruptcy court, a slightly different dance is occurring. Last week, the state
of Illinois passed a
pension reform bill that cuts back pensions by reducing cost-of-living
adjustments over three decades, compared to the previous inflation formula.
Chicago, which has less than half of what’s needed for its pensions and almost
$900 million in unfunded retiree healthcare on top of that, hopes to
present its plan early next year.
In almost
all of these cases, the priority was cutting benefits—either in pensions,
health plans or both—as opposed to making up the shortfall elsewhere. There
also is a parallel push to shut down access to pensions, which is a deferred
salary, by offering the newest employees only the option of opening a
retirement savings account, as well as paying a larger share of their salary
for healthcare.
“The
assault on retirees today is greater now than at any other time,” said the
Pension Rights Center’s Friedman. “We’re seeing it in Detroit. We’re seeing it
in states that are trying to get rid of good pension plans. We’re seeing it in
major corporations that are transferring pensions to insurance companies. We’re
seeing it in Congress, where members are being heavily lobbied to introduce
legislation that would allow multi-employer plans to cut retirement pensions [a
technicality that lowers the employer share]. And there are the ongoing efforts
to cut back on Social Security.”
What is
taking shape is a nationwide retirement security crisis. Experts like Johnston
and Friedman are saying that for the first time in decades, tens of millions of
elderly people will slide into poverty as they will be left with little more
than Social Security to live on—which now averages $1,230 a month, and that’s
before paying taxes on it, or Medicare fees.
The reason
this is happening in the private sector, as Ellen Schultz noted in her book Retirement
Heist, is that executives want to boost stock prices and cash
out. In the public sector, it’s because government managers and legislators
used retirement funds for all kinds of services instead of raising taxes. While
powerful interests are working to steal other people’s money, average Americans
are increasingly finding themselves on shaky ground.
“What I
have seen in a lot of these cases is that people end up selling their homes,”
Schultz told Forbes,
when asked what happens to people whose pensions are cut. “Really the only
safety blanket that you have is Social Security, which also is under assault.
The same retirement industry that dismantled pensions would love to dismantle
that program and have a crack at the assets.”
Steven Rosenfeld covers democracy issues for AlterNet and is the
author of "Count My Vote: A Citizen's Guide to Voting" (AlterNet
Books, 2008).