HR Hero Line editor Wendi Watts reviews the book While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, and Bankrupted San Diego, and Loom as the Next Financial Crisis by Roger Lowenstein. She argues that this book is particularly relevant and important in light of the current economic crisis and how many large companies and public entities are now struggling with promised pensions.
“America is sitting on a retirement time bomb.” That pretty well sums up the reason for reading Roger Lowenstein’s book While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis on the looming pension underfunding disaster in the United States. In case the past two months of global economic upheaval hasn’t overwhelmed you, Lowenstein’s book may be enough to shove you over the edge.
Before you think that a book on pension doesn’t have anything to do with you because neither you nor your parents worked for one of the Big Three automakers, just answer the following questions. Do you pay taxes? Does your company or employer pay taxes? If the answer to either one is yes (which I suspect it is, unless you are a drug dealer) then you have a very vested interest in what is about to happen with both public and private pensions that are not adequately funded.
Lowenstein, a business journalist and contributor to the New York Times Magazine, SmartMoney, and Portfolio and author of three bestselling books, tells the story of three different pension plans and the financial fall out from them. He begins with a detailed account of how the pension plans between the automakers and the United Auto Workers union were created and grew out of control. The second section recounts the New York City subway system strike over pensions in December 2005 that ground the Big Apple to a halt. The third section describes the City of San Diego’s soap opera-like drama over unbelievable underfunding of pensions for city workers that finally involved the FBI, the SEC, felony charges against several members of the pension board, and more lawsuits than you can shake a stick at.
Here’s how pensions affect taxpayers. Many public employers – entities such as city councils and school boards – have been channeling Scarlett O’Hara when it comes to pensions and retirement health care promises. They’re going to think about that big bill another day.
Instead of raising taxes or cutting services today to give workers – teachers, police officers, firefighters, and such – bigger raises that have to paid right now, they give a smaller or even no raise on current salaries but agree to increase pension and/or retirement health care benefits later. And once those promises are made, it is all but impossible to get out of them.
So where does the money come from to pay for this bill? You guessed it, taxes. Some public employers have been fully funding their retirement obligations all along and there isn’t going to be a balloon payment coming due to catch up for years of underfunding. But some public employers have not. Just look at San Diego to see what happens when you put off until tomorrow what you should be paying today. A November 12, 2008, article from the San Diego Union Tribune reported that the gap between promised benefits and money available to pay those costs is now $2.7 billion and the estimated payment the city will have to make into the system in July 2009 is $166 million, although it could go up.
On the private-sector side, a federal agency called the Pension Benefit Guaranty Corporation insures many private-sector pension funds and gets its money from insurance premiums that the agency charges to employers. While it isn’t funded by taxes, there are already rumblings that if large private-sector companies with great big pensions (read “automakers”) end up in bankruptcy, the agency may need a bailout like Fannie Mae and Freddie Mac in the future. And there’s tax dollars at work again.
Lowenstein selected three pension plans that are representative of what is going on across the country in the public and private sector today. He gives a behind the scenes look at the reasoning behind the decisions and why so many employers and unions kept turning a blind eye to the monster they were creating. In each of these cases he also identifies the root of the problem, which is often overlooked in heated debate and finger pointing.
Although the first two-thirds of the book are very slow reading and get into more blow-by-blow detail that is probably necessary to tell the story, the last two sections in particular are fascinating. It’s worth hanging in there until the end. But don’t skip the first two sections. With the current situation with Ford, GM, and Chrysler, it’s important to understand how to got to where we are. There’s plenty of blame to go around and in Lowenstein’s book you can get the whole story without political bias or some hidden agenda. His goal seems to be to tell the whole story without playing favorites.
Wendi Watts is the Web content specialist at M. Lee Smith Publishers and editor of HR Hero Line. Before moving to the online world at HRHero.com, Wendi worked as an editor for the state Employment Law Letters. She has worked as an editorial assistant for the IT Division at Middle Tennessee State University, was the school and community liaison for Rutherford County Schools in Murfreesboro, Tennessee, and was a journalist at two Middle Tennessee newspapers.