How Kennedy and Kerry Screwed Labor

Corporate America is rushing to get out of pension payments while the getting is good–before the crisis in retirement benefits eases. And for organized labor, the stakes on pensions are higher than ever. The news that United Airlines is prepared to kill its $8.3 billion pension plan and hand over the remains to the federal Pensions Benefits Guaranty Corp. (PBGC) raised the possibility that other airlines would follow suit.

United’s proposal to dump the pensions of 120,000 retirees comes despite a law passed by Congress earlier this year that provided relief to underfunded plans–including special breaks for the airlines as well as the steel industry, which itself has seen companies eliminate pensions in recent years.

In fact, the rise in the stock market in recent months has significantly eased the crunch in what are called “defined-benefit” pensions–regular payments at a pre-set amount. According to Standard & Poor’s, the pension funding gap will drop from a high of $219 billion in 2002 to $112 billion by the end of this year.

But that hasn’t stopped big businesses from reducing pensions–and in the steel and airline industries, dumping them altogether. United–despite a recent recovery in its business–is pushing hard to ditch the pensions because, the company claims, it needs the cash to secure financing to come out of bankruptcy.

If United’s plan is terminated, the assets used to fund will be taken over by the PBGC, which insures pensions for 44 million Americans. However, the PBGC caps benefits–and would cut United pensions for many United workers by as much as 50 percent. (CEO Glenn’s $4.5 million pension, however, is exempt).

If the steel and airline industries are the worst hit by the pension crisis, it’s because both have enormous capital investments built up over decades. Both industries are under pressure from new competition and enormous overcapacity built up during the boom years of the late 1990s.

In the case of the steel industry, several bankrupt companies were able to rid themselves of pensions with the help of the United Steelworkers of America, which agreed to the moves to preserve jobs in the consolidation of the industry. Now United threatens to bring the same tactic to the airline industry.

As Business Week summarized the view of one analyst, “Such a move would give UAL a huge edge, thus compelling Delta and US Airways to do the same.” In the case of United, the unions have protested moves to get rid of the pensions–but the overall pattern of accepting concessions is the same.

United workers took a 20 percent pay cut in 1994 in exchange for 55 percent stock ownership–shares that are now practically worthless in United’s bankruptcy. Then, the unions took $2.5 billion in pay and benefit cuts in 2002–and now the company wants even more cuts.

United’s pension threat is part of a game of chicken over who will bear the cost of restructuring the airline industry–that is, the liquidation of one or more traditional carriers. United, for example, extracted massive concessions from its unions under pressure from the federal Airline Transportation Stabilization Board (ATSB), which demands labor concessions as a precondition for loan guarantees. Dominated by free-market ideologues, however, the ATSB has twice refused United’s application.

Meanwhile, US Airways–which last year terminated its pilots’ pensions–is threatening to file for bankruptcy again unless its unions accept more givebacks. United too is using the threat of terminating bankruptcies to extract even more out of the unions.

If the givebacks aren’t forthcoming United will force the PBGC–and taxpayers–to cover the cost. The PBGC itself is in the red–paying out $3 billion in benefits with only $1 billion in premiums–a situation made worse by the pension law passed this year.

That law–sponsored by Sen. Ted Kennedy (D-Mass.) and backed by John Kerry–let companies reduce their premiums paid to the PBGC. This will only worsen the PBGC shortfall–and prepare the ground politically for further pension restructuring and harsh cuts.

For labor, the pension crisis has once again proved that concessions only lead to more concessions. The battle for a decent retirement, moreover, also includes the millions who are covered by inadequate 401(k) or “cash balance” programs and the inadequate Social Security benefits. If the unions are going to take the lead in this fight in the future, they must start by holding the line at United today.

LEE SUSTAR is a regular contributor to CounterPunch and the Socialist Worker. He can be reached at:


LEE SUSTAR is the labor editor of Socialist Worker