Disappearing Pensions Stir Concern

As companies announce cuts or freezes in employee pensions, many recall a warning from retiring Fed chief Alan Greenspan: Social Security and Medicare have uncertain futures. Cal professor Harley Shaiken offers Scott Simon his insights.

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SCOTT SIMON, host:

In recent valedictory remarks at the Federal Reserve Bank of Philadelphia, the outgoing Fed Chairman Alan Greenspan expressed fear that the federal government has promised, quote, "more to the baby boom generation in its retirement years than our economy has the capacity to deliver." The prospect of the government retracting Social Security and Medicare benefits comes as a number of private companies are also pulling back on commitments to future retirees. This week, for example, Verizon announced that it's freezing the pensions of current managers and offering no pensions to future hirees. The AF of L-CIO is sponsoring a number of rallies this weekend, calling, in part, for more protection for retirees who have been union members.

Harley Shaiken is a professor at the University of California, Berkeley and specializes in labor issues. He joins us from Berkeley.

Professor, thanks very much for being with us.

Professor HARLEY SHAIKEN (University of California, Berkeley): It's nice to be here.

SIMON: What are the implications of moving away from traditional pensions?

Prof. SHAIKEN: Essentially traditional pensions gave a whole generation of Americans considerable security. That was a vital part of the social contract that emerged with the government through Social Security in the '30s and with private employers largely in the '40s and '50s. As we move away from that, we have a far less secure retirement where the risk is passed from the employer on to the shoulder of the employee when that individual is most vulnerable. So the implications are great and not positive at all.

SIMON: Americans are changing jobs half a dozen or more times in their adult lives in part because the economy and the technology is changing. Doesn't it make sense to have pension plans that are more portable or tied to the individual rather than a company?

Prof. SHAIKEN: Absolutely. That could be a very healthy development, but does that mean that employees should bear the sole risk themselves for their retirement? That's a very separate issue that's got nothing directly to do with how often we change careers or jobs or industries.

SIMON: Can the Pension Benefit Guaranty Corporation--that's the federal body that takes over pensions when companies say they can no longer afford them--can they absorb and pay out all of these pensions?

Prof. SHAIKEN: That's going to become much more difficult every year as we see more and more companies rely on bankruptcy as a competitive strategy, not simply as a last resort. What many companies have begun doing is declaring bankruptcy in order to shed their pension obligations to in effect dump them on the Pension Benefit Guaranty Corporation. It was never designed for that, and long term, we're headed to a situation which might require a major government bailout given the fact today, for example, there are over 350 firms that have declared bankruptcy and foisted all or part of their pension obligations on the Pension Benefit Guaranty Corporation.

SIMON: Mr. Greenspan said that that action ought to be taken sooner rather than later on issues like Social Security and Medicare benefits so that people can begin to adjust their plans, really begin to adjust their lives. Do you share that sense of urgency?

Prof. SHAIKEN: If you look at the next 75 years out, if we rolled back just one-third of the recent tax cuts, which largely benefit the wealthy, the Social Security deficit by that alone would be wiped out. So there are ways we can address this. We might have to, at some point, raise the wages in which Social Security taxes are charged to provide more funds for the system, but we really have to recognize that Social Security was introduced in the first place because we had a huge problem in this society with people, after their active working life, descending into poverty as the reward for a productive life, rather than being able to enjoy what they contributed.

SIMON: At the same time, what advice might you give to a friend or a relative?--recognizing that it's one thing to urge political changes that would satisfy your resolution, but if they don't come about, hundreds of millions of Americans are left with a practical decision to make about what they're going to do.

Prof. SHAIKEN: Those are increasingly tough decisions. Sixty percent of Americans rely as their sole source of retirement income, or their chief source, Social Security benefits. Social Security was never meant to bear the full burden. It was meant to be part of a broader security of pensions provided through an employer and of personal savings. So the individual advice, you know, that I would give someone is, you know, certainly savings become more important than ever but the problem we have to grapple with is this isn't something that the individual in most cases is going to be able to resolve in a satisfactory way. We don't want retirement to translate into poverty. We've got to address this as a society. The economy's too uncertain and the challenges and risks too great not to look long and hard as to how we can improve pensions through employers, making them more portable, for example, making them more regulated to ensure that speculators aren't the beneficiaries rather than retirees, and, ultimately, to ensure that Social Security remains a vital part of what retirement's all about.

SIMON: Harley Shaiken, professor at the University of California, Berkeley, who specializes in labor relations, thank you very much for being with us.

Prof. SHAIKEN: Thank you.

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