The Trump administration has quietly rolled out a technical change to current Treasury Department policies that will allow corporations the leeway to alter their existing pension arrangements. The move, announced in early March, puts the private sector retirement benefits that millions of Americans have earned at risk.
The change allows businesses to offer retirees and their families a one-time payout to replace the monthly or yearly pension checks they currently receive.
Such lump-sum buyouts can be tempting for older beneficiaries, who generally underestimate their life expectancy. As such, these one-time payouts often fall far short of what they might otherwise be due under their existing pensions.
“It’s not that people are greedy, it’s that they’re afraid,” Economic Policy Institute (EPI) retirement expert Monique Morrissey told ThinkProgress. “And they have no way of evaluating this. They believe they’re being protected and they’re not.”
Though the large numbers involved in a lump-sum offer can look generous on paper, recipients often suffer from a lack of context and comparison when evaluating their choices. Researchers have found that such buyouts almost always cheat retirees, costing them a significant amount of money when they are compared to the proceeds to which they would have been entitled under their original pension or even a privatized annuity system. The difference is big enough that when the Obama administration had the opportunity to act, the Treasury Department issued rules which effectively banned firms from offering such buyouts.
“It really is a rip-off for workers,” said Amy Traub, a researcher for liberal public policy think tank Demos. “There may be somebody out there who’s telling them they can manage the money far better than the old pension plan ever would have, but in practice that’s not true, and people run out of money quickly compared to the lifelong guarantee they had from their pensions.”
Though almost no new workers are offered traditional defined-benefit pensions today, the old system’s legacy is substantial. More than 20 million Americans currently rely on pensions from their current or former employers. The White House’s hasty rollback of the Obama-era lump-sum rules draws a big, green target on their backs.
Moreover, companies are under increasing pressure to offload the future costs and risks of pension promises. Restoring the lump sum option makes it easier for them to do so.
But where does that pressure come from? In a word: Shareholders. Where firms once valued their long-term outlook and viewed their investors as only one of several groups to which it owed responsible conduct, the modern U.S. or multinational corporation is driven to realize perpetual improvements in its stock price or ability to pay dividends.
It’s not that business owners used to be high-minded, selfless communitarians. The old way of thinking was more practical than moral: A promise to take care of workers into old age helped firms recruit and retain the best talent, and offering a gentle off-ramp when productivity naturally dips served all parties in good stead. Pensions were a key part of this compact between bosses, workers, capital managers, and government.
“It’s this old idea that when you give your life to work for an employer that employer will support you and your spouse in your old age,” Traub said. “[T]hat goes against the idea of companies being lean and mean, contracting out labor, relying on temporary labor and independent contractors, and minimizing any obligation to the people who make a company function every day.”
But influential Wall Street interests have, over time, eroded this social contract, and now view pensions simultaneously as impediments to profit and a ripe source of plunder. Instead of a model in which businesses planned for long-term sustainability by balancing the interests of all stakeholders, including their workforce, companies have adopted a different mindset that’s come hand-in-hand with a broader Wall Street takeover of the economy. Progressive economic wonks often refer to this shift as “financialization.”
Financialization has played a substantial role in the broader inequality of income and wealth that grabbed so much popular attention in the wake of the 2008 financial crisis. And the changes wrought by financialization often manifest themselves as a sort of “mission creep,” in which companies redefine their goals around shareholder interests instead of just making and selling good products and services.
The rise of stock buybacks, to which the Trump-era tax bill has provided a steroidal boost, has been one recognizable result of this shift. Firms looking to employer pensions as a potential source of profits, to be skimmed off for shareholder use, is another. In all cases, the virtuous cycle in which the productivity wrought from hard work pays off for all parties begins to break down.
“That means this is a zero-sum game where the other stakeholders are seen as cost centers to squeeze money out of, including workers,” the Roosevelt Institute’s Katy Milani told ThinkProgress. “One obligation that corporations had to workers beyond their salary was pensions.”
Of course, a generation of corporate leaders didn’t just wake up one day and decide to stop honoring their obligations. Rather, it is the end result of diligent ideological campaigning, supported since the 1970s by a free-market think tanks and right-wing media outlets underwritten by the hyper-rich. And so it’s come to pass that abandoning pension promises to workers via lump-sum buyouts, as the Trump administration’s new IRS guidance, first reported by CNN, encourages firms to do, is officially called “de-risking” by the business community.
Ironically enough, companies don’t even make productive use of the capital they free up by ditching retirees in this fashion. Instead, this boodle is bundled off to the very investors who brought this pressure in the first place, effectively enshrining a competitive stock share value as a corporation’s pre-eminent product. A fissure, between workers and the nominal productive goals of the firms for which they toil, naturally emerges.
And that fracturing eventually exacts a cost on the lives of those outside these arrangements. Pensions help retirees mitigate the extent to which they will need to lean on public programs or private subsidies that shift service costs – like hospital bills, for instance – to other consumers. The 401(k) system touted as an alternative to pensions produces far worse outcomes for the relatively few workers who even have access to these products.
The widening of these financial strains beget additional economic dislocation and its attendant anxieties — and further the fearful environment that makes trading a lifetime pension for a lump-sum payoff more attractive. This efficient allocation of burdens is the end result of a logic that Demos’ Traub says “Wall Street wants to see, because it makes shareholders a bigger profit more quickly.”
As the EPI’s Morrissey notes, the casual deception of these retirement payouts doesn’t just position the poaching of hard-earned employee benefits as a responsible act, it helps to mask the extractive reality of the financial sector in ways that have made the investor class almost untouchable for politicians throughout their free-marketers’ cold war on working people.
“Their supposed value to society is that they are distributionally efficient, allocating capital to the most productive use. But so much of what they’ve been doing lately,” he says, bears “only the most indirect relationship to any investment in a productive growing economy, and everything to do with skimming money off people.” Reader beware: That lump sum offer, promising freedom from economic fear, is just one more grasping hand reaching for your pocket.