Should Young Workers Pass on Pensions and Fight for Social Security?

By Brian Callaci

It’s become increasingly clear that promises employers make to workers about their post-retirement security are eminently breakable. In the public sector, where workers long thought that their pensions were protected by ironclad state constitutions, the courts are now ruling that state and municipal governments, may in fact, abrogate pension obligations.

This trend in the public sector follows by a decade or two the death of pensions in the private sector, where corporate managements and allied shareholders and financiers raided pension funds to finance downsizing, boost accounting profits, and even convert pension promises into cash by financial sleight-of-hand.  Private sector workers found their pensions replaced by “cash balance” plans or 401(k)s. Today, workers outside the upper end of the income distribution find they have little, if anything, in their 401(k)s.

The widespread expectation of decent post-retirement pensions for blue-collar workers dates from collective bargaining agreements won by the CIO industrial unions in the 1940s. The unions were aware of the fragility of pension promises from private employers, however. Thus they fought for the creation and then expansion of Social Security—post-retirement income security as a matter of right rather than a promise from a private employer.

UAW president Walter Reuther insisted that the auto industry pension plan be integrated with Social Security, reasoning that it would give corporations an interest in expanding social security, since employer contributions would decrease as Social Security benefits increased. Unfortunately, and not for the last time, corporate hostility to the welfare state overcame its narrow economic self-interest, and workers themselves turned against the plan when they saw Social Security increases failing to increase their own pension payouts.

Thus defeated, labor unions by-and-large gave up on an expansion of government-provided Social Security and focused instead on improving their own collectively-bargained private welfare states. Workers came to expect their employer-provided private pensions, rather than Social Security, to provide for them in old age. Provision for retirement, like healthcare, was tied to employment, not a right of citizenship.

When corporate America decided it no longer wanted to provide a private welfare state, they abandoned and shredded their pensions with relative ease throughout the 1980s and 1990s. Today only 18% of private sector workers are covered by defined-benefit pension plans, down from almost 40% in 1980.

With pensions all but vanished from the private sector, and the ironclad nature of public sector pensions called into doubt by an increasingly conservative judiciary, one wonders what will become of the current private, employer-provided welfare state. In light of the breakable nature of employer pension promises, it’s becoming increasingly irrational for young workers to accept pension benefits in lieu of wages or other benefits in employment contracts.

Perhaps young workers, who face permanently precarious employment and are losing hope of enjoying employer-provided retirement security, will renew the push to radically expand Social Security. In a hopeful sign, President Obama has just given up his plan to cut Social Security. And going forward, any raising of the retirement age could just be reversed by the next generation of young workers. As a sign of the times, the satirical news website The Daily Mash ran the headline “Young People Just Going to Change Pension Age Back Later.”