Union members at Boeing are angry they lost their pension plan. They probably won't get it back

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CNN
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One of the most painful points of contention between workers and management in the Boeing strike is the loss of the traditional pension plan for union members in 2014.

The conflict is reminiscent of previous labor disputes at Boeing and other companies in which workers lost what was once a vital part of their retirement savings. Employers have made and won demands to shift the risks associated with their workers' retirement from their own profits to the retirees themselves.

Now unions are fighting back, demanding a return to the traditional pension plans their members lost in earlier concessions. That's one reason 33,000 members of the International Association of Machinists went on strike Friday after 95% voted against the tentative collective bargaining agreement that would have increased Boeing's payments into their 401(k) pensions but would not restore the traditional pension plans they lost 10 years ago. Restoring the pension plans was originally a stated goal of the IAM, but they were not part of the agreement reached and rejected last week.

Jon Holden, chairman of the largest union group at Boeing, said immediately after the vote on the strike on Thursday evening that it was not a single problem, but that he knew: “I know that for many members the wound of the loss of their pension plans has not yet healed.”

In fact, traditional pension plans, once a staple of many workers' retirement plans, have become extremely rare in the modern American workplace. And once a company abandons traditional pension plans and moves its employees to a 401(k) retirement account, they're almost always gone forever.

Other unions have also tried to restore lost pension plans, such as the United Auto Workers (UAW) during its successful strike at General Motors, Ford and Stellantis last fall. But no American union has ever succeeded in restoring them. Although the auto industry strike resulted in a deal with record wage increases and other benefits for the UAW, the pension plans of workers hired since 2007 have not been restored.

Employers often argue that workers and retirees are better off with a 401(k)-type retirement plan, especially if their investments are doing well. During the UAW strike at America's three unionized automakers last fall, Ford Chief Financial Officer John Lawler called the traditional pension plans sought by the union a “plan of the past.”

The retirement plans available to American workers generally fall into two categories. First, a traditional pension plan that pays retirees or their survivors a fixed amount of money each month until they die, called a defined benefit plan. The other is an individual retirement account, such as a 401(k) plan, where the employer makes contributions, usually a portion of the employee's own pre-tax contributions to the account. These plans are called defined contribution plans. In this case, retirees can decide the amount to withdraw from the account as often as they want – at least until they run out of funds.

According to the Employee Benefit Research Institute, only about 8% of workers in U.S. companies have defined benefit pension plans available today, down from 39% in 1980. This decline largely reflects the decline in union membership in companies, from about 17% in 1983 to 6% in 2023.

Meanwhile, private retirement accounts, such as 401(k), have increased from just 19% of corporate employees to 50% today. In fact, almost all private sector workers covered by traditional pension plans also have access to some type of defined contribution pension plan. Far less than 1% have only a traditional pension plan.

One of the few remaining sectors of the economy where pensions dominate is the public sector. Traditional pension plans are still available to about 80 percent of public sector employees who work at any level of government, says Craig Copeland, director of wealth research at EBRI. But even in those cases, pension benefits are not as good as they once were, he says.

In 2014, the union base at Boeing only narrowly approved the new contract terms. These included withdrawing pension rights from all workers hired after the ratification of the contract and freezing the rights already acquired by members.

They did so because Boeing had threatened to build its next plane, the 777X, at a nonunion plant outside the state, which the company said it was considering if the deal didn't go through. Members rejected a similar offer by a 2-1 vote last fall, but then approved the offer in a second vote, with only 51 percent of those voting in favor.

Boeing soon decided to eliminate traditional pension payments for its non-union workers as well.

The loss of that pension plan ten years ago is one of the main reasons why rank-and-file Boeing employees almost unanimously rejected the tentative agreement presented this time, even though the company had offered to increase their contributions to 401(k) plans by up to $10,800 a year.

“The company absolutely needs to address the issue of retirement savings. The offer on the table did not even come close to meeting the expectations and demands of our members,” Brian Bryant, the IAM's international president, said in an interview with CNN on Wednesday.

While Bryant stopped short of saying members would be happy with just a return to the traditional defined benefit pension plan, he added, “You certainly have to offer workers something that has the same value as the defined benefit pension plans.”

Employers prefer 401(k)-type pension plans over traditional pensions because they shift the risks from the company to the employees. Under these pension plans, the company agrees to make contributions to the plans, and those contributions are used to purchase assets such as stocks and bonds. The contributions and the earnings from those assets are used to pay the benefits promised to retirees. If earnings are good, a company may not need to make additional contributions. However, if the plan assets lose value, the employer must make the additional contribution to pay the promised pension benefit.

However, with plans such as a 401(k), those contributions, withdrawals, and market risk are entirely the responsibility of the individual. If the value of retirement savings and investments in a 401(k) plan declines, the worker loses out, even if they have made regular contributions throughout their working lives. Additionally, a retiree may outlive their assets in a defined contribution retirement account, whereas with a defined benefit plan, the plan is only obligated to pay as long as the recipient, or in some cases a survivor, remains alive.

Another advantage of traditional private sector pension plans is that if the employer goes bankrupt and the plan does not have the funds to pay benefits, the benefits are guaranteed by the Pension Benefit Guaranty Corp. The PBGC is a premium-funded agency similar to the Federal Deposit Insurance Corp. that insures customers' bank deposits.

IBM was the only company to reopen a closed pension plan last year, but it did not do so as part of collective bargaining. Rather, it was the result of a pension plan buildup that still existed for those who had been hired before the plan was closed to new participants in 2005 and benefits were “frozen” for existing participants in 2008.

“As the market has gone up, it's become severely overfunded,” Copeland said. “If you take the assets of a defined benefit pension plan, it's taxed at almost 100%. So you have to use it somehow within the plan. One way to do that is to reopen the plan.”

But this move was not part of collective bargaining. Rather, it was a unilateral move by IBM.

“IBM is continually improving the way we support the financial well-being of our employees,” IBM said in a statement when asked about the move.

But the chances of such a revival of the Boeing pension plan are slim, even if the picket lines say “retirement or bankruptcy.” So even if the loss of the pension plan is one of the reasons 33,000 union members are striking, experience tells us that they are likely to go back to work without that demand being met.