Since their strike last month, Boeing factory workers have repeated a theme on their picket lines: They want their pensions back.
Boeing froze its traditional pension plan as part of concessions union members narrowly passed a decade ago in exchange for maintaining production of the company’s planes in the Seattle area.
Like other large employers, the aerospace giant argued at the time that skyrocketing pension payments threatened Boeing’s long-term financial stability. But the decision nonetheless had tax implications for the company.
The International Association of Machinists and Aerospace Workers announced Wednesday evening that 64 percent of its Boeing members voted to reject the company’s latest contract offer and remain on strike. The offer included a 35% increase in pay rates over four years for 33,000 striking machinists, but no restoration of retirement benefits.
The six-week strike extension puts Boeing — which is already heavily in debt and lost an additional $6.2 billion in the third quarter — into even greater financial danger. The walkout halted production of the company’s 737, 767 and 777 jetliners, cutting off a key source of cash that Boeing receives when it delivers new planes.
The company, however, indicated on Thursday that the restoration of pensions remained a failure in future negotiations. The union members were just as categorical.
“I feel sorry for the young people,” Charles Fromong, a tool repair technician who spent 38 years at Boeing, said at a Seattle union hall after the vote. “I’ve spent my life here and I’m getting ready to leave, but they deserve a pension and I deserve a raise.”
What are traditional pensions?
Pensions are schemes in which retirees receive a fixed amount each month for the rest of their lives. Payments are generally based on the worker’s years of service and previous salary.
However, in recent decades, traditional pensions have been replaced in most workplaces by retirement savings accounts such as 401(k) plans. Rather than enjoying a guaranteed monthly income in retirement, workers invest the money they and the company contribute.
In theory, investments such as stocks and bonds will appreciate in value over the course of workers’ careers and allow them to save enough for retirement. However, the value of the accounts may vary depending on the performance of the financial markets and each employee’s investments.
Why have employers abandoned pensions?
The shift began after 401(k) plans became available in the 1980s. With the stock market performing well over the next two decades, “people thought they were brilliant investors,” Alicia said. Munnell, director of the Center for Retirement Research at Boston College. After the bursting of the dot-com bubble in the early 2000s took a toll on pension plan investments, employers “started freezing their plans and shutting them down,” she added.
In the 1980s, about 4 in 10 American workers in the private sector had a retirement plan, but today only 1 in 10 do, and they are overwhelmingly concentrated in the financial sector, said Jake Rosenfeld , chairman of the sociology department at the University of Washington. St.Louis.
Companies have realized that remaining responsible for guaranteeing a certain percentage of workers’ salaries in retirement involves more risks and difficulties than defined contribution plans which “transfer the risk of retirement to the worker and the retiree”, Rosenfeld said.
“And so it became the major trend from one company to another,” he said.
Rosenfeld said he was surprised that the pension plan “remained a sticking point on the rank-and-file side” at Boeing. “These are the types of diets that have been in decline for decades now. a company reestablishing or implementing from scratch a defined contribution plan.
What happened to Boeing’s pension plan?
Boeing demanded in 2013 that machinists give up their pension plan as part of a deal to build a new model 777 airliner in Washington state. Union leaders were terrified that Boeing would build the plane elsewhere, with non-union workers.
After a fierce campaign, a simple majority of 51% of machinists approved a contract extension in January 2014 that made union members subsequently hired ineligible for pensions and froze raises for current employees starting in October 2016. In exchange, Boeing contributed a percentage of workers’ wages. in retirement accounts and matched employee contributions to a certain extent.
The company subsequently froze the pensions of 68,000 non-union employees. Boeing’s top human resources executive at the time said the move was intended to “ensure our competitiveness by curbing the unsustainable growth of our long-term pension liabilities.”
How realistic is the Boeing workers’ demand?
Boeing increased its pay offer twice after the strike began on September 13, but strongly opposed the return of pensions.
“There is no scenario in which the company would reactivate a defined benefit pension for this or any other population,” Boeing said in a statement Thursday. “They are prohibitively expensive, and that is why virtually all private employers have abandoned them in favor of defined contribution plans.”
Boeing says 42 percent of its machinists have been with the company long enough to be covered by the pension plan, even though their benefits have been frozen for many years. In the contract that was rejected Wednesday, the company proposed increasing monthly benefits for covered workers from $95 to $105 per year of service.
The company said in a securities filing that its pension liability totaled $6.1 billion as of Sept. 30. Restoring the pension could cost Boeing more than $1.6 billion a year, Bank of America analysts estimated.
Jon Holden, president of IAM District 751, which represents the strikers, said after the vote that if Boeing is not willing to reinstate the pension plan, “we have to find something to replace it.”
Do companies ever restore pension plans?
It is unusual for a company to reinstate a pension plan after it has been frozen, although a few have done so. IBM replaced its 401(k) with a contribution to a defined benefit plan earlier this year.
Pension plans have become rare in American companies. This decision could therefore help IBM attract talent, experts believe. But IBM’s motivation may have been financial; the pension plan became significantly overfunded after the company froze it about two decades ago, according to actuarial firm Milliman.
“The IBM example doesn’t really indicate that there has been a movement toward defined benefit plans,” said Munnell of Boston College.
Milliman analyzed 100 of the largest company defined benefit plans this year and found that 48 were fully funded or better, and 36 were frozen with excess assets.
Can we put pressure on Boeing to change its mind?
Pressure to end the strike is mounting on new CEO Kelly Ortberg. Since the walkout began, he has announced about 17,000 layoffs and moves to raise more money through stock or debt sales.
Bank of America analysts estimate that Boeing is losing about $50 million per day during the strike. If it lasts 58 days – the average of Boeing’s latest strikes – the cost could reach nearly $3 billion.
“We see more upside to (Boeing) further improving the deal and reaching a quicker resolution,” the analysts said. “In the long term, we see the benefits of making a generous offer and meeting an increase in the workforce that outweighs the financial stress caused by prolonged disruption. »
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Manuel Valdes in Seattle contributed to this report. Koenig reported from Dallas and Bussewitz from New York.
