Pensions and Wall Street don't mix!

by Susan Webb

With cascading exposures of massive corporate fraud, we are hearing a lot 
about the impact on investors. Why should readers of the People's Weekly 
World [or The Guardian] care? Most are not Wall Street players.

But increasingly, working people have been forced to depend on the stock 
market and corporate profits for their retirement income. Now, many workers 
have found with a rude shock that the stock market and Corporate America 
are not only unreliable, but also riddled with corruption and fraud.

Company pension [superannuation] funds, state and local government pension 
funds, union pension funds and individual 401(k) funds all rely on the 
stock market. Now they are taking a hit.

While CEOs are walking away with fortunes, workers' retirement incomes are 
on shaky foundations at best and in some cases have been wiped out.

In its July 8 issue, Business Week reported, "Since the start of the 
year, WorldCom stock has lost more than $40.4 billion in value. The biggest 
holders are all leading asset managers that run pension and mutual funds: 
Alliance Capital Management, Wellington Management and Barclays Bank".

According to the July 9 Washington Post the state of Maryland's 
pension system losses from WorldCom holdings totalled about $52 million 
"the worst loss ever" and this comes on the heels of $100 million in losses 
on Enron, Tyco and Global Crossing stocks.

The Post quotes a spokesperson for the $15 billion Iowa Public 
Employees' Retirement System, which held $28 million worth of WorldCom 
bonds and $3.7 million in stock as of the end of May, as saying "We're 
still trying to establish how much of that money we've lost. Most of it, I 
would say. We've been hurt."

The Post also cites estimates by officials at the $34 billion 
Virginia Retirement System that unrealised WorldCom stock losses — losses 
aren't realised until the stocks are sold — presently equal about $46 
million, but will probably go higher.

"Since 2000, some $5 trillion in 'wealth' has evaporated from the stock 
market", says a July 9 Labor Research Association (LRA) commentary.

As the losses mount, the question arises: what will happen if a pension 
fund cannot make its payments to retirees?

State and local government pension funds are usually guaranteed by the 
state or local government. But what this means is, if the fund value were 
to drop to the point where the fund couldn't meet its pension obligations, 
the government would have to raise the money from taxpayers so working 
people would be hit either way.

Private company defined-benefit pension funds are guaranteed by a federal 
agency, the Pension Benefit Guaranty Corporation (PBGC). But that's not 
always a sure thing these days.

For example, the United Steelworkers of America filed a motion June 25 in 
US District Court in Ohio opposing the termination of pension plans that 
cover USWA members at Republic Technologies International (RTI).

The PBGC had asked the court to terminate company defined-benefit plans one 
month before the expected closure of all RTI facilities.

The union says this would deny benefits to employees with 15, 20 or more 
years of service.

Over the past decade employers have shifted from providing guaranteed 
defined-benefit pension plans to offering "defined contribution" plans, 
generally referred to by their IRS category as 401(k) plans.

Employers have been doing this, says LRA, not because the 401(k)s are good 
for workers but because they are cheaper to administer and offer the 
companies tax breaks.

As the AFL-CIO points out, defined-contribution plans do not provide a 
guaranteed level of retirement income, and offer no protection against 
Enron-type losses.

According to the Economic Policy Institute (EPI), about half of all 
households had a traditional defined-benefit pension plan in 1989, but by 
1998 only one-third had such a plan.

In the same period the percentage of households with the risky defined-
contribution pension plan doubled from one-quarter to one-half.

The AFL-CIO is urging passage of S-1992, the Protecting America's Pensions 
Act, introduced by Democrat Senator Edward Kennedy aimed at protecting 
workers from having their pensions wiped out, a la Enron.

Among other measures, the Bill gives workers the right to sell company 
stock in a 401(k) plan and seeks to counterbalance employer pressures on 
workers to load up on company stock.

Such reforms are important. At the same time, the unfolding corporate crime 
spree exposes the dangers of tying workers' retirement income to "greed-is-
good" Wall Street.

We already have a model national retirement program to build on: Social 
Security a guaranteed defined-benefit public social insurance fund that 
does not invest in the stock market.

Currently, Social Security only replaces about 40 percent of a worker's 
income, with the average benefit a little more than $800 per month — not 
enough to live on.

The time may be ripe for a national campaign to strengthen and expand 
Social Security to provide a livable and stable retirement income for 
America's workers and their families.

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People's Weekly World paper of Communist Party USA