People Before Profits
Quickly converging with the debate on Social Security is the worsening state of the U.S. private pension system. Recent research reported by Physicians for a National Health Program, and by Richard Berner, the chief U.S. economist for Morgan Stanley, at the March meeting of the National Association of Business Economists, surveys a number of developments that have many in corporate America worried about their bottom line. But the findings also reveal a grim reality for workers as corporations and the Bush administration squeeze workers’ pensions and health care coverage to maintain profits. The report includes the following:
• An 18-year increase in average life expectancy since 1935.
• Retirees now outnumber active participants in most plans, with the trend continuing.
• Accounting changes mandated by the Sarbanes-Oxley law, passed in the wake of the Enron/WorldCom/Andersen scandals, have exposed an increased underfunding of private pension plans by an estimated $200 billion to $600 billion.
• “Mistakes” in the pension guarantee acts passed by Congress actually mandated corporations to underfund their pensions in an alleged effort to prevent them from “hiding” income in the plans.
• Since 2001, Dun & Bradstreet calculates pension plan net asset values and returns on investments have plunged below the level that is sustainable with the current level of employer contributions.
• Multi-employer plans, a supposedly risk-diversified approach favored by the Pension Benefit Guaranty Corp., are falling into a black hole with $100 billion in deficits in 2002.
• Combined state retirement system finances are in an even deeper hole, with a $366 billion deficit for 2003, and 93 percent of all plans underfunded.
• Participation in defined-benefit plans has been cut in half over the last 15 years.
• Health expenditures are headed to 18 percent of GDP compared with 8.5 percent in 1980. And 18 percent may significantly understate the real costs.
• Health care premiums are now rising at four times the increase in workers’ earnings and inflation.
• Health and pension combined costs are now a serious, in some cases crisis-level, threat to U.S. manufacturing, exceeding 25 percent of operating income in aerospace, defense, metals, airlines, transport, auto, auto parts and equipment, among others.
• The new federal bankruptcy law removed previous protection against loss of your home due to inability to pay medical debts. Note that 50 percent of personal bankruptcies involve these debts, which result not from uninsured workers, but from workers covered by worthless insurance with impossible deductibles, co-payments and low maximum-benefit caps.
• Rising health and retirement service costs are consuming virtually all “real” income growth for workers.
In short, the “perfect storm” of federal debt and skyrocketing health and retirement costs is still approaching. It has not been diverted. It threatens to wreck any prospects of sustained economic growth, and may very well bring on a new recession.
Unless an effective national health care system is enacted, the distortions and costs of the current private system cannot be corrected. The health costs embedded in a U.S.-manufactured GM car, for example, are twice that of a car made in Canada and three times that of a car made in Japan. Both of these countries have national health services covering all citizens. While manufacturers seek cost cutting off the backs of workers, they are objectively in a position to support a national health care system. And unless Social Security is protected from the Wall Street vultures, there is likely to be no safety net from the myriad of failed or soon-to-be failed state and private pension plans.
People Before Profits