Since last month’s strike, Boeing ( BA ) factory workers have repeated one theme from the picket line: They want more retirement.
Boeing froze its traditional pension plan as part of a concession that union members narrowly voted to make a decade ago in exchange for keeping the airline’s plane production in the Seattle area.
Like other large employers, the aerospace giant argues that ballooning pension payments threaten Boeing’s long-term financial stability. But the decision has come back to have a fiscal impact on the company.
The International Association of Machinists and Aerospace Workers announced Wednesday night that 64% of Boeing members voted to reject the company’s latest contract offer and remain on strike. The offer includes a 35% increase in wage rates over four years for 33,000 striking workers but no restoration of pension benefits.
The extension of the six-week-old strike plunges Boeing – which is already deeply in debt and lost another $6.2 billion in the third quarter – into another financial danger. The walkout has halted production of the company’s 737, 767 and 777 jetliners, cutting off a key source of cash Boeing receives when it delivers new planes.
The company indicated on Thursday that returning pensions remains a non-starter in future negotiations. The union members were equally adamant.
“I’m sorry for the young people,” Charles Fromong, a tool-repair technician who has spent 38 years at Boeing, said at the Seattle union hall after the vote. “I’ve spent my life here, and I’m getting ready to leave, but he’s getting a pension, and I have to add to it.”
What is a traditional pension?
A pension is a plan in which the retiree gets a certain amount of money every month for the rest of their life. These payments are usually based on years of service and the former worker’s salary.
However, over the past few decades, traditional pensions have been replaced in most workplaces by retirement savings accounts such as 401(k) plans. Instead of a guaranteed monthly income stream in retirement, workers invest the money they contribute and the company.
In theory, investments such as stocks and bonds will grow in value over a worker’s career and provide enough savings for retirement. However, the value of the account may vary based on the performance of the financial markets and the investments of each employee.
Why are employers moving away from retirement?
The shift began after 401(k) plans became available in the 1980s. With the stock market doing well over the next two decades, “people thought they were good investors,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. After the bursting of the dot-com bubble in the early 2000s took a toll on pension plan investments, employers “started freezing plans and shutting them down,” he added.
In the 1980s, about 4 in 10 US workers in the private sector had a retirement plan, but today only 1 in 10 do, and many are concentrated in the financial sector, said Jake Rosenfeld, chairman of the sociology department at the University of Washington-St. Louis.
The company realized that it is still on the hook to ensure a certain percentage of workers’ salary in retirement brought more risk and difficulties than defined contribution plans that “shift the risk of retirement to workers and retirees,” Rosenfeld said.
“And it became a major trend among companies after companies,” he said.
Rosenfeld said he was surprised that the retirement plan “remains a sticking point on the rank and file side” at Boeing. the company recovers or implements from the beginning the defined contribution plan.
What happened to Boeing’s pension plan?
Boeing demanded in 2013 that machinists drop their retirement plans as part of an agreement to build a new model of the 777 jetliner in Washington state. Union leaders fear Boeing will build the planes elsewhere, with non-union workers.
After a bitter campaign, bare 51% of the majority of the machines in January 2014 approved the extension of the contract that made the members of the union hired after the ineligible for retirement and frozen increases for employees there since October 2016. In return, Boeing contributed a percentage of the workers’ wages. into the pension account and match the employee’s contribution to a certain point.
The company then froze pensions for 68,000 non-union employees. Boeing’s top human resources executive said at the time that the move was to “ensure our competitiveness by curbing the unsustainable growth of long-term pension liabilities.”
How realistic are the demands of Boeing workers?
Boeing raised its second wage offer after the strike began on September 13 but has been steadfast in its opposition to returning pensions.
“There is no scenario in which the company activates a defined benefit pension for this or any other population,” Boeing said in a statement Thursday. “They are very expensive, and that is why all private employers have moved from them to defined contribution plans.”
Boeing says 42% of its engines have been with the company long enough to be covered by the pension plan, even though their benefits have been frozen for years. In the contract rejected Wednesday, the company proposed to raise the monthly payment for covered workers from $95 to $105 per year of service.
The company said in a securities filing that its recognized pension plan liability was $6.1 billion as of Sept. 30. Reinstating the pension could cost Boeing more than $1.6 billion a year, Bank of America analysts estimate.
Jon Holden, president of IAM District 751, which represents the striking workers, said after the vote that if Boeing refused to restore the pension plan, “we have to get someone to replace it.”
Does the company ever restore the pension plan?
It is unusual for companies to restore pension plans after they have been frozen, although some have. IBM replaced its 401(k) match with a defined benefit plan earlier this year.
Pension plans have become rare in corporate America, so the move could help IBM attract talent, experts say. But IBM’s motivation may be financial; The pension plan became significantly overfunded after the company froze about twenty years ago, according to the actuarial firm Milliman.
“The IBM example is not an indication that there is a movement toward defined benefit plans,” said Munnell at Boston College.
Milliman analyzed 100 of the largest companies’ defined benefit plans this year and found that 48 were fully funded or better, and 36 were frozen with excess assets.
Could Boeing be forced to change its mind?
Pressure to end the strike is mounting under new CEO Kelly Ortberg. Since the walkout began, he has announced about 17,000 layoffs and steps to raise more money from stock sales or debt.
Bank of America analysts estimate that Boeing is losing about $50 million a day during the strike. If it goes to 58 days – the average of the last few attacks on Boeing – the cost could reach almost $3 billion.
“We see more benefit to (Boeing) Improving the deal more and reaching a resolution faster,” the analyst said. “In the long term, we can see the benefits of making generous offers and dealing with greater labor input than the financial strain caused by prolonged disruption.”
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Manuel Valdes in Seattle contributed to this report. Koenig reported from Dallas, and Bussewitz reported from New York.
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