The single biggest issue in the Machinists strike against Boeing isn't wages, health-care costs or job security. It's pensions, for reasons...
The single biggest issue in the Machinists strike against Boeing isn’t wages, health-care costs or job security. It’s pensions, for reasons that aren’t hard to understand.
The average Boeing Machinist is close to 50 years old, union spokeswoman Connie Kelliher said. With an average 20 years’ seniority, most Machinists have more working years behind them than ahead.
About 20 percent of Puget Sound-area Machinists are 55 or older and thus eligible for early retirement.
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In the days before the strike started last week, Boeing lifted its pension offer by 10 percent to $66 a month for each year of employment, from the current $60.
The union dismissed that offer as the smallest percentage increase ever, saying the company could afford to raise this “monthly benefit multiplier” to as much as $80. A pre-strike issue of the Machinists’ newsletter urged workers to “tell [Boeing] you want to retire with dignity.”
What would it cost Boeing to add another dollar, or another $5, to its offer? The company isn’t saying.
But rough calculations by The Seattle Times suggest each dollar increase in the monthly benefit multiplier would add $33 million to the pension plan’s total liability — the amount that would have to be added to the plan’s assets today to fund the additional benefit into the future.
With the help of an actuary, The Times estimated how much increasing pension benefits for the 16,500 Puget Sound-area Machinists would cost Boeing.
Assuming money put in the plan would earn an average annual return of 7 percent, an increase of $6 per month per year of employment would require an estimated infusion of $200 million by Boeing. A $20 increase would raise the amount by roughly $667 million. (If returns fell short of that 7 percent, the company would have to contribute more money in order to pay the promised benefits.)
Those are big numbers, but Boeing has pumped much more into its plans in recent years to make up for shortfalls in stock and bond returns.
After several years when the booming stock market permitted minimal contributions, Boeing added $340 million to its overall pension assets in 2002, $1.7 billion in 2003, nearly $4.4 billion last year and $1 billion so far in 2005 to ensure that the plans can pay their existing obligations.
Of those contributions, $1.7 billion went into the plan that funds Machinists pensions. (The company says it might add $550 million more before the end of the year.)
An improved pension for Machinists could set the pattern for other Boeing workers. Chaz Bickers, a Boeing spokesman, noted “a pension increase offered to any one group of employees would be taken into account when considering our entire 152,000 employee population.”
Just as the Machinists have a clear incentive to maximize their retirement package, Boeing has an incentive to hold down any increases.
In old-line industries from steel to airlines, soaring pension and health-care obligations have helped drag companies into bankruptcy.
Many employers have cut back “defined-benefit” retirement plans or ditched them for “defined-contribution” plans such as 401(k) plans.
In such plans, workers (and sometimes the employer as well) contribute money to their own accounts and make their own investment decisions. Companies like defined-contribution plans because they’re cheaper and don’t create long-term liabilities for the company.
Boeing has a defined-contribution plan, as well as traditional pension plans.
It says something about Boeing’s financial health and the continued strength of the Machinists that the two are battling over how much to raise pensions, rather than whether or not to have them at all. The company posted a $1.9 billion profit last year and $1.1 billion in the first half of this year.
As the U.S. working population inexorably ages, pensions and other retirement benefits have taken center stage in labor-management disputes.
“Wages remain important, but benefits — particularly pensions and health costs — have soared to the top of the agenda,” said Harley Shaiken, a professor specializing in labor issues at the University of California, Berkeley.
“If you’re 22, pensions have very little to do with you,” Shaiken said. “But if you’re 49, you’re counting the years. You understand that any wage increase you get, you’re probably going to spend, but pensions are what you need for a decent life down the road.”
Pensions were one of the great gains of the American labor movement after World War II. Boeing’s main pension plan started in 1955, around the high point of organized labor’s power and influence.
“Firms used private pension plans as a way to increase worker loyalty,” said Daniel Jacoby, who holds the Harry Bridges chair in labor studies at the University of Washington. “Unions saw advantages in demonstrating to their membership that they had extracted large payments.”
Over time, private pension plans became as big and complex as the companies that spawned them.
Boeing maintains several pension plans, with total assets of nearly $39 billion as of Sept. 30, 2004. The plans cover some 560,000 people — active and laid-off workers, retirees and beneficiaries, and former employees still entitled to future benefits.
The main plan, which covers Machinists, workers represented by the Society of Professional Engineering Employees in Aerospace and some salaried employees, had $12.5 billion in assets at the end of 2004.
According to federal filings, that plan covered about 70,000 active and laid-off or on-leave workers, and paid benefits to 65,000 retirees and beneficiaries.
Another 25,000 retirees or former Boeing workers were entitled to future benefits.
Under the just-expired contract, Machinists who retire after age 60 get $60 a month for each year of service. For example, a worker who retired after 30 years with the company would get $1,800 a month, or $21,600 a year, for the rest of his or her life.
The union has contrasted that to the package given Boeing Chief Executive James McNerney when he was hired from 3M this summer. McNerney received a supplemental pension benefit with an estimated present value of $22 million.
Workers can retire as early as 55, but their benefits are reduced by 2 percent for each year before age 60. So someone retiring at 58 would get a 4 percent cut in the monthly check.
Once a retiree starts drawing checks, the benefit is frozen. One bone of contention for the union is that Boeing hasn’t voluntarily increased benefits since 1989 for already retired workers.
However the two sides resolve the pension issue, Boeing workers are among a dwindling number of Americans who can count on private pensions to supplement Social Security, 401(k)-type plans and personal savings.
Thirty years ago, Shaiken said, 40 percent of the U.S. work force was covered by private pension plans. Today, only about 20 percent are.
Drew DeSilver: 206-464-3145 or email@example.com