In While America Aged, business and finance writer Roger Lowenstein skillfully chronicles the evolution of the pension crisis in three very different entities – General Motors, New York City and San Diego – and then offers solutions. Lowenstein (Buffet: The Making of an American Capitalist) depicts the pension crises like entertaining historical fiction with lessons in history, business and human nature.
The history of GM’s pension situation can be traced to the late 1940s. The timing was right for union pensions; in 1949 GM had record profits and a union contract expiring in 1950. With swelling market demand the company couldn’t afford a strike, so it agreed to a landmark deal, including a pension funded by the company. Successive strike-averting concessions made to the union during GM’s boom years resulted in more generous pensions as well as 100-percent paid healthcare. But in the mid- to late 1960s, auto profits slowed and imports eroded GM’s sales. Since then, U.S. auto sales have slumped and rising costs have squeezed profits – just as the promised pensions came due. GM had to pay $55 billion into worker pension plans from 1991 to 2006; meanwhile the company paid only $13 billion in dividends to shareholders.
Lowenstein offers suggestions on making retirees’ incomes more secure. In the private sector, Lowenstein feels pensions went awry because unions pushed benefits too high while global business competition grew, and life spans increased. Now fewer companies have pensions and instead offer 401(k)s, and Lowenstein suggests that government require 401(k) sponsors to offer annuities to employees as they retire so an income stream is assured. Municipalities and states across the country are virtually insolvent because they are hundred of billions of dollars behind in pension payments. Lowenstein therefore recommends that the federal government require that every dollar of pension benefits is funded as the benefit accrues. As While America Aged underscores, the days of promise now, pay later, are over.
Ellen R. Marsden writes from Mason, Ohio.
