Go The Way of Pensions
By Eduardo Porter and Mary Williams Walsh
New York Times
Thursday, February 9, 2006
For years, the benefit packages of General Motors were
considered to be so good that the company was known among
workers and retirees as Generous Motors.
But now even G.M., struggling to maintain its grip in the
global auto industry, is being forced to bow to a changing
competitive landscape and join the ranks of hundreds of
other companies that are moving to unburden themselves of as
much of the cost of supporting their retired work force as
For those who were counting on G.M. to care for them for
life, the company's recent moves to pare back, in different
ways, the pension and health benefits of union and nonunion
retirees amount to a breach of a promise that was at the
core of the nation's labor relations for much of the
post-World War II era: workers would give their productive
years to the company; the company would care for workers
when they got old.
"The thing that annoys me about G.M. is that when I retired
I had a letter that said I would receive health care for
life at no cost," said Chester Clum, 79, a former sales and
service manager at G.M. who retired in 1981 after 38 years
of service. "They never brought up that they could change
that at will."
But, in fact, the change has been long in coming. While
there are exceptions in industries less subject to intense
competition, G.M. is like many other once impregnable
American corporate titans in arguing that reducing the
burden of caring for retirees has become essential to
compete against foreign companies with lower benefit costs
and domestic rivals with younger work forces and less
generous benefit packages.
With retirees living longer and accounting rules forcing
companies to more honestly reflect their full costs on their
books, the corporate-sponsored social contract is no longer
sustainable. Something else, experts say, needs to replace
"It was easy to offer these things 40 years ago because they
were cheap," said Paul Fronstin, director of the Health
Research and Education Program at the Employee Benefit
Research Institute, a nonpartisan group in Washington.
"They're not cheap anymore."
Moreover, Mr. Fronstin said, "employers have cut benefits
not just because of the cost of these benefits, but because
of the competition. How do you stay competitive when your
competitors are not offering these benefits?"
Companies have also noticed that, in many cases, offering a
secure retirement package is no longer essential to attract
formidable younger talent. I.B.M. found this out after
closing its pension plan to new hires in December 2004. It
hired about 7,500 employees last year, and observed that
none of them seemed perturbed to be getting a rich 401(k)
plan instead of the pension plan that was closed to them.
Last month, I.B.M. froze the pension plan, saying that
employees would only get the benefits they had earned up
until the freeze. In the future, everybody will earn
retirement benefits in the 401(k) plan.
In many ways, G.M. is late to this transformation. G.M.
said this week it would cap contributions to its health care
plan for its nonunion retirees at this year's level and it
would also pare their pension benefits. Nonunion employees
hired after Jan. 1, 1993, are not eligible for any
retirement health benefits at all. The automaker also
closed its pension plan to new nonunion workers as of Jan.
The union, meanwhile, agreed for the first time last
November that retirees would start paying for part of their
health care coverage.
Many of America's large companies took similar steps in
recent years, closing their guaranteed pension plans and
post-retirement health plans to new employees. Instead,
they have offered fixed contributions to individual
retirement accounts and health care packages limited to
If a private company still offers old-style benefits to its
retirees, chances are it has union contracts or other legal
obligations that forbid a wholesale unwinding of established
benefit packages. Unionized companies are about twice as
likely to offer retiree health benefits as nonunion shops,
according to a survey by the Kaiser Family Foundation.
By last year, the Kaiser survey found, only a third of
companies with 200 workers or more offered any health care
benefits to their retirees, down from 66 percent in 1988.
Small companies, which employ about half of the work force,
never offered very generous retirement benefits.
The companies that still offer health insurance for their
retirees have been trimming the plans in many ways. A
survey of large companies by Kaiser and Hewitt Associates, a
consulting firm, found that while only 12 percent of large
employers ended all retiree health benefits last year, 71
percent required higher premium contributions from retirees,
34 percent increased co-payments or co-insurance and 24
percent increased deductibles.
Companies have been moving away from traditional,
defined-benefit pension plans since the late 1980's, when
Congress imposed a steep excise tax on corporate withdrawals
from pension funds. The new penalty prompted consulting
firms to start promoting new plan designs that reduced
pension obligations, often by eliminating the rich benefits
that older workers could earn under earlier designs.
Companies that had never had pension plans in the first
place, meanwhile, steered clear of them altogether, opting
instead to create 401(k) plans, which are generally cheaper
and easier to administer.
The only employer of any appreciable size known to have
created a traditional pension plan in the last few years if
the United Methodist Church, which, as a church, is exempt
from the pension funding rules.
The exceptions to this steady erosion are in the public
sector, where traditional retirement benefits abound, and in
a few isolated industries that still have particular reasons
for offering such benefits. Large pharmaceutical companies,
for example, which still have greater control over their
markets because of patent protection say they continue to be
committed to traditional benefits packages, while also
providing 401(k) plans.
"The feeling here is the traditional pension offers
certainty for our employees in their retirement," said Patty
Seif, a spokeswomen for GlaxoSmithKline.
Ms. Seif said Glaxo also offers retirees the same health
coverage that active workers get, as long as they have had a
least 10 years with the company. Ms. Seif said Glaxo wanted
to offer solid health benefits to retirees because it was in
the health care business itself.
Given all the flux in today's corporate environment, many
workers -- especially younger ones -- are rolling with the
punches. According to a survey in 2004 by the Employee
Benefit Research Institute, only 5 percent of workers
consider retiree health care to be their most important
benefit, and only 4 percent put a defined-benefit pension at
the top of the list. And 9 percent put either of these
benefits in second place.
And even those most immediately affected appear resigned to
their fate. Gordon Goecke, 83, who worked at G.M. for 35
years before retiring, is currently undergoing treatment for
prostate cancer, paying a $30 co-pay every time he sees a
doctor, which he said is about once a month, and a $10
co-pay for each prescription.
"As we go on through the years ahead we're probably going to
foot half or two-thirds of the bill," Mr. Goecke said.
"Times change, and you've got to ride with them. G.M. is
not the only company that's got financial problems."
Jeremy W. Peters
contributed reporting from Detroit for this article.