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Executive Times |
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2008 Book Reviews |
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While
America Aged: How Pension Debts Ruined General Motors, Stopped the NYC
Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis by
Roger Lowenstein |
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Rating: |
**** |
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(Highly Recommended) |
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Click
on title or picture to buy from amazon.com |
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Promises Roger
Lowenstein’s new book, While
America Aged: How Pension Debts Ruined General Motors, Stopped the NYC
Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis,
provides a chilling description and analysis of the pension mess throughout
America. Lowenstein calls on corporations, unions and government to mend
their ways and have the political will to allocate resources effectively.
Here’s an excerpt, , pp. 106-109: After
the transit strike, one
union after another demanded higher pensions. What is surprising is not that
they succeeded, but how easily they did so. In 1966, the
Patrolmen's Benevolent Association won full pensions (that is, equal to
their full salaries) after thirty-five years.76 A game of leapfrog ensued. The
sanitation workers, arguing that they were also "uniformed," got four
pension
sweeteners over the mid-1960s, vaulting them to a half pension after twenty years
and virtual parity with the firemen and cops.77 A panicked PBA came hurrying
back for more. The TWU, which had set off the
pension bandwagon, demanded that it not be left behind. Ellis Van Riper, a
negotiator for Local 100 who had been jailed for nine days in 1966,
met with the
city's actuary and, pounding on the desk for emphasis, thundered,
"Goddamn, if the garbage men get `20/50' so can we."78 This was late 1967.
With its
contract nearing expiration, the union threatened a strike. This made
pensions truly a citywide issue. Transit disputes always galvanized the
public, and memories of the strike of '66 were still raw. Fearing a repeat,
the city agreed: half of final salary—guaranteed—for workers fifty and up
with twenty years' service. And there was more. Transit agreed to change the
definition of the "final salary" upon which the pension was
calculated. Previously, it was the average earned over an employee's final
five years. Almost unbelievably, it now became the last year's salary—including
overtime. This led to significant abuse, as retiring employees
maneuvered, with the help of friendly overseers, to be assigned heroic
amounts of overtime. As the TWLT crowed to its members, an employee who
retired after thirty years, and who had earned $9,000 in his last year, would
receive an annual pension of $6,129— compared with $3,943 under the old
contract. 79 In a pen stroke, the city's
future commitment to transit workers had soared by more than half. John J. Gilhooley, the head of
the Transit Authority, considered it frankly excessive, but, as he admitted
later, "I yielded on the pension rather than take a strike.”
80 The authority made the same
decision two years later, when it agreed to pay the transit pension's full
cost, thus eliminating entirely the employee contribution. Transit
workers—and they alone—now had the "free" pension that the fiery
Santo had demanded. 81 The transit deals opened the
floodgates. Thanks to the free ride at transit, contribution rates for other
unions soon fell to negligible levels. Victor Gotbaum, head of the sprawling
District Council 37, which represented parks, hospital, and municipal
workers, was set to sign a contract when he heard about the TWU's gold-plated
pension. He barged into City Hall exclaiming, "I can't live with
my pension deal." He negotiated a better one. The teachers got an even richer
settlement—a pension for more than half pay after twenty-five years (a
rather short career for a white-collar professional). When Gotbaum saw he had
been leapfrogged by the teachers, in 1970, he demanded yet a sweeter deal.
The response of a Lindsay aide to one such pension demand was memorable:
"When would we have to start paying for it?" Told that, due to the
peculiarities of the pension calendar, an increase would not affect the
budget until three years later, by which time Lindsay would be serving out
his final year, the aide breezily approved it.
82 Police
and firemen got two quite special plums. One was the so-called heart bill.
This mandated that any officer or fireman retiring with heart disease was
entitled to a presumption that his sickness was job-induced, meaning he could
retire with a disability benefit equal to three-quarters, instead of half, of
salary and one exempt from federal taxes. 83 More
exceptional still was the so-called variable pension supplement. Unhappy that
other unions had narrowed the gap, the firefighters demanded an extra ...
something. The city said it was tapped out. The firefighters union, always
intellectually creative when it came to its pension, suggested that the
city, which then was investing most of its retirement funds in bonds, put a
portion in stocks. Any surplus profit could be divided up among retired
firemen at the end of the year. This
turned every principle of pension accounting on its head. Since the city
would have to pay a full pension even in years in which its investments
declined, reason dictated that it save, not distribute, the so-called surplus
in good years. Nonetheless, retired firemen and also cops got the "variable
supplement"—quickly dubbed a "Christmas bonus" without shouldering
any of the market risk. 84 Although
one wonders at the thinking of Arthur Goldberg, the former secretary of labor
and Supreme Court justice who mediated that deal, the labor accords of the
late '60s fit a pattern, and responsibility for them, at least in part, lay
beyond Lindsay's (or anyone in the city's) control. All of urban America was,
to one degree or another, in the midst of a broad experiment with the
welfare state that had begun in the late 1950s and early '60s, largely as an
effort to improve the conditions of inner-city minorities and others.
Spending on social services was rising sharply, welfare rolls were soaring
ultimately accommodating nearly one in seven New Yorkers—and public-sector
work rolls were expanding.85 Interest groups gained new influence
at City Hall, and unions were among the beneficiaries. However,
Lindsay's helplessness in the face of organized labor surely made it worse.
In a visceral sense, the mayor spent his entire first term recovering from
the debacle with Quill. Seeking to avoid work stoppages, he embraced
fact-finding panels to mediate disputes but these only played into labor's hands.
Though seemingly impartial, the tendency of mediators was to "split the
difference" and recommend at least a portion of union demands."
Transit was thus able to piggyback substantial wage gains-36 percent over
four years—on top of its rich new retirement benefits.87 The
irony is that, despite Lindsay's generous treatment of labor unions, he was
hit by a wave of crippling strikes anyway. The mayor's approach—and his
results—somewhat improved as he moved into a second term, in 1970. By then,
however, New York had established a uniquely generous pension edifice. In
effect, it bizarrely inverted the age-old wisdom that pensions should be a
fraction of working income. By the end of the 1960s, and including Social
Security (to which the city contributed), municipal employees earned more after
they retired. A transit worker could retire on 120 percent of his final salary;
a teacher, on 130 percent. 88 Predictably, such rich pensions
induced a wave of early retirements. In the next fifteen months, 30 percent
of eligible motormen retired.89 Within two years, two-thirds of
the subway maintenance crew was gone. 90 Thanks to the new, more liberal
definition of "final salary," this exodus turned out to be far more
costly than expected. One motorman, who had earned $13,500 in his second to
last year, claimed a "final salary" (on which his pension would be
based) of $29,000—an extreme example of overtime abuse. Such cases became
common throughout the civil service. However, it took an actuary to fully
understand their impact. For instance, the cost of employing a fireman for a
day of overtime in his last year was $76 in cash wages. However, that single
day could boost the fireman's lifetime pension benefits by an astonishing
$1,141. 91 Such and similar pension
mathematics led to soaring obligations, which put a heavy load on the city budget.
By 1970, the New York City Employees' Retirement System (an umbrella fund
for transit and various other employee groups) had fallen to a funded level
of only 40 percent—a dangerously low level, and down from 70 percent a
decade earlier. 92 Anyone
worried about taxes and pensions and searching for alternative solutions will
enjoy While
America Aged. Steve
Hopkins, July 18, 2008 |
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The recommendation rating for
this book appeared in the August 2008 issue of Executive Times URL for this review: http://www.hopkinsandcompany.com/Books/While America Aged.htm For Reprint Permission, Contact: Hopkins & Company, LLC • E-mail: books@hopkinsandcompany.com |
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