A picket sign stands outside Angel of the Winds Arena as striking Boeing employees gather to vote on a proposed contract Wednesday in Everett, Washington.
Associated Press
A sizable percentage of Boeing’s striking assembly workers are committed to the seemingly unreasonable demand that their pension plans be reinstated.
When members of Boeing’s machinists’ union narrowly voted in 2014 to accept a contract extension that froze their pension plans and shut out new hires, they succumbed to the seemingly inevitable from afar. It looked like. US.
But 10 years later, benefit experts told Forbes that improvements in economic conditions, regulatory changes, and new wrinkles in the system reduce the risk for employers who promise workers lifelong retirement benefits. Thanks to support, pensions are quietly making a comeback, he said. And some aerospace industry officials say it may be a smart move for Boeing to meet union pension demands to retain talent in a tight labor market. The loss of experienced manufacturing workers has played a key role in the steady drumbeat of quality issues plaguing Boeing since the coronavirus pandemic, aerospace experts told Forbes. It can take years for members of a machinist’s union to master complex assembly tasks that are primarily done by hand.
Cliff Collier, an aerospace consultant who negotiated a pension freeze when he was an executive at parts maker Vought Aircraft Industries in the 2000s, said, “By hiring the same people for life, we’re not as good as our industry.” “No industry is benefiting.” . He said pensions have unparalleled power to retain mid-career workers. “More or less, no matter where you work, you’re glued to it. You leave too much on the table to go anywhere.”
“Recovering pensions is a very difficult task,” said Scott Mikus, an analyst at Melius Research. But he also believes it will help Boeing in the war for talent, such as engineers, that could be an advantage to cutting-edge technology and space companies on the West Coast. In the 1980s, “the pinnacle of engineering was essentially Boeing and Lockheed Martin.” Now, he said, “If you’re an engineer and you’re really good, why not work at Open AI, Amazon, Alphabet, Microsoft, where they’re pushing the boundaries?”
The International Society of Machinists is calling for the reinstatement of a retroactive pension system for the 33,000 members who assemble Boeing aircraft in the Seattle area, but Boeing is refusing to do so. He is adamant that he will not do it. After 64% of its members voted against a tentative contract agreement that included increased funding for 401 employees, the company said in a statement on Thursday: There is no scenario in which we will reopen.” (k) Retirement Savings Accounts The company said that pensions are “so prohibitively expensive that virtually all private employers are moving from pensions to defined contribution plans.”
“The loss of pensions remains at the heart of this issue,” John Holden, president of IAM, a local group representing Boeing workers, said after the vote. He vowed to ask the company to improve its retirement benefits.
IAM District 751 President John Holden announced to members in Seattle on Wednesday that the union had voted to reject Boeing’s offer of a new contract.
Associated Press
pendulum swing back
In 1990, about 35% of private sector workers were enrolled in a pension plan, according to data from the Department of Labor. That share had fallen to 10% as of March, the result of a decades-long trend of companies freezing pension plans or selling them to insurance companies to deal with deteriorating financial conditions. In the early 2000s, this trend was exacerbated by a triple whammy. The plummeting stock prices caused by the dot-com bust eroded the value of pension funds’ assets. The sudden drop in interest rates has lowered the expected future rate of return on bonds. And a 2006 law required companies to add additional funds to their pension funds to cover the resulting shortfall.
However, employee benefit consultants argue that so-called defined benefit retirement plans, such as pensions, in which employers promise retirees an income until they die, and 401(k) plans, in which employers help employees save, He said the pendulum is starting to swing back toward defined contribution options like plans. Retirement – The worker makes the decision and assumes the financial risk.
Corporate pension funds are in the strongest financial position in decades, with the stock market bull market of the past decade increasing the value of assets in frozen plans that companies continue to manage for retirees and current employees with outstanding benefits. In addition, there are some effective systems. Meanwhile, interest rates have risen by more than 5%, improving the outlook for future bond yields and reducing the amount pension scheme administrators have to pay out. According to a financial consulting firm, pension plans at companies in the S&P 500 are 101% funded. This means that it has all the assets it needs to meet its future obligations. This is an increase from 74% in 2012.
During the pandemic, Congress gave administrators of cash-strapped plans more time to fill funding holes, so they didn’t have to invest as aggressively.
Congress is considering lowering pension insurance premiums to encourage the introduction of more plans.
“As far back as I can remember, there has never been a more favorable time for defined benefit pension plans,” said Zorast Wadia, a pension accountant and consultant at benefits firm Milliman.
Wadia and Jonathan Price, a benefits expert at consultancy Seagull, said many companies were considering reintroducing defined benefit plans, particularly in industries with talent shortages such as healthcare. Price said aerospace and defense companies are among the customers considering the possibility.
IBM is leading the way. Big Blue made headlines late last year when it announced it would suspend contributions to U.S. employees’ 401(k) accounts and restart a pension plan that was frozen in 2008. But there was a twist. Traditionally, pension payments have been based on the worker’s salary during the final year of employment. IBM, considered a trendsetter in benefits, now offers so-called cash balance plans to its employees. Under this plan, the company credits employees with a percentage of their salary for each year of service and promises conservative profit margins, reducing financial stress. Risk to Employer. Workers can receive the balance in their account as a lump sum upon retirement or as a lifetime annuity.
Another hybrid pension option that could be an alternative for Boeing and Machinists is a variable annuity plan. This plan reduces risk for employers in the event of poor performance, as payments are tied to investment returns.
Dying Broke
The renewed interest in pensions comes as a result of a growing recognition that asking workers to manage their own retirement savings through 401(k) accounts is putting many people in a difficult position. It is also a sign of being there. Only half of households with working Americans between the ages of 55 and 64 have savings in a 401(k) or IRA, and this age group accounts for 5 million Vanguard accounts. The median balance is just $87,000. “A Social Security or 401(k) plan alone is not enough for retirement,” Wadia says. “With a pension plan, you will never go bankrupt or go bankrupt.”
Companies like IBM have the potential to restart their pension funds because their frozen pension funds are overfunded and have assets that exceed their expected payment obligations, saving them large sums of money. expensive. For IBM, the move will eliminate hundreds of millions of dollars in annual 401(k) contributions. The new cash balance plan will be financed solely using surplus funds of $3.6 billion in pension assets.
Boeing’s pension finances aren’t as good as IBM’s, but they’re much healthier than they were a decade ago. The fair market value of plan assets at the end of 2023 was $48.9 billion, $5.4 billion less than projected future obligations to retirees, resulting in a funding ratio of 90%. This is a significant improvement over 2014, when it was 78% funded.
Like many other U.S. companies, this has allowed Boeing to make more conservative investments. By the end of 2023, 60% of assets will be invested in bonds, up from 48% in 2014. Under federal regulations, Boeing’s pension plan is fully funded at the end of 2023.
Fully restoring pensions would be costly: Bank of America analysts estimate it would cost $1.6 billion a year. (They also estimate that the strike, now in its sixth week, is costing Boeing $1.5 billion a month.)
But Boeing’s pension finances are in decent shape, so it can afford to pay for a machinist somewhere in the middle, Collier said. And the tough stance workers are taking on the issue is putting pressure on Boeing to make concessions. “They’re going to have to do something creative in terms of taking on some of the risk when employees leave.”
Under the proposed contract that workers rejected this week, Boeing would offer a one-time $5,000 contribution to employees’ 401(k) accounts, with employees’ contributions equal to up to 8% of their pay. It was. It also proposed covering transaction fees when workers convert their 401(k) savings into pensions.
If Boeing doesn’t cave in on pensions, Collier believes it’s only a matter of time before other aerospace and defense companies re-introduce defined benefit plans to gain an advantage in the war for talent. According to their financial statements, the three companies in this field, Textron, Huntington Ingalls, and L3Harris, have the financial strength to do so by funding them with surplus funds from their frozen pension plans at the end of 2023. It is said that there is. Northrop Grumman’s funding rate was not far behind at 99.4%, followed by RTX at 98.4%.
That makes sense for Collier, who resented a wave of pension freezes that turned aerospace and defense workers into “free agents.” “Defined benefit plans are the best way I’ve ever seen to keep well-paid, highly skilled people at the same company.”
