Boeing and the Union

Off Topic Politics and World Issues
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Boeing says it will now keep thousands of jobs in the Seattle area, after a tight union vote went its way.

The machinist union voted to accept an eight-year contract with Boeing. In return for a $15,000 signing bonus, workers reluctantly agreed to give up their valuable pensions and switch to a 401k type of retirement plan in two years.

I’ve been looking at a lot of financial issues that companies and municipalities have had during the past few years; and many can be traced to their retirement liabilities.

The viability of pensions always appeared to be based on some VERY poor assumptions (e.g. favorable worker-to-retiree ratios; continued economic growth; etc.).

Has history shown us that Pensions are a poor retirement vehicle, and most likely need to be eliminated for other, more viable, retirement vehicles?

Let’s discuss.

Mufasa

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Can we start by figuring out how pensions figure some of this stuff? I mean where do the numbers come from exactly? Would pensions created NOW be more effective than ones created in the PAST with some of the erroneous thinking (with knowledge of outsourcing, automation, etc.)?

It seems as if a lot of the problems come with those faulty figures. I get pretty mixed because imo if a company told workers they were going to get X if they worked for X number of years they need to do everything in their power not to shit on those people who signed contracts. At the same time if the money doesn’t exist to meet those obligations it simply doesn’t exist (see Detroit).

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And what can the union do if Boeing reneges ? Sue them ? I am not sure how I would vote

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Correct me if I’m wrong; but didn’t the idea of Pensions (faulty numbers, assumptions and all); come at a time when America was the manufacturer to the World? (right after WW-II?)

This was a time when the developed World was mostly under rubble; and the undeveloped World was barely out the 1st Century. We could “assume” continued, unbridled growth (after all, who would compete with us?)…and an ALWAYS favorable worker-to-retiree ratio.

And who really gave serious thought to medical cost? (No one, really).

It just seems to me that the concept of pensions as we know them…was a “House of Cards” that was bound to fall. (as we’ve seen with many companies and municipalities).

As someone said earlier…when there is no money, there is no money.

In terms of contracts, you simply have to renegotiate when conditions dramatically change.

Mufasa

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Pensions can be quite a load for a company to carry and honor. Many were set up when the life expectancy was a lot lower and now retirees are going past 90 years old. My dad worked for Grumman for 32 years and collected on his pension for 36 years. He made a lot more on his pension than he did while on the books. They did take $100 per month off that about 10 years ago.

I have 2 pensions and 2 401ks that should do me well in retirement. The larger pension, I’m locked into from a pre-merger company I worked for. The smaller one, there is talk of rolling that into a 401k, which is fine with me. I prefer a 401k over a pension.

Rob

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IMO…with the exception of some unions the private sector has eliminated ‘defined’ pensions. I’m 50 and have never worked at a company that offered one. I think when one does the math, the question is: If the median annual income is currently $40,000 yr, 50 years of work totals 2 million, and an individual needs between $500,000 and a million saved plus social security and medicare for a decent retirement. What are the odds that the majority of people will be able to pull it off?

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[quote]Mufasa wrote:
Correct me if I’m wrong; but didn’t the idea of Pensions (faulty numbers, assumptions and all); come at a time when America was the manufacturer to the World? (right after WW-II?)

This was a time when the developed World was mostly under rubble; and the undeveloped World was barely out the 1st Century. We could “assume” continued, unbridled growth (after all, who would compete with us?)…and an ALWAYS favorable worker-to-retiree ratio.

And who really gave serious thought to medical cost? (No one, really).

It just seems to me that the concept of pensions as we know them…was a “House of Cards” that was bound to fall. (as we’ve seen with many companies and municipalities).

As someone said earlier…when there is no money, there is no money.

In terms of contracts, you simply have to renegotiate when conditions dramatically change.

Mufasa[/quote]

That was also a time when your post retirement life expectancy was very short. In most heavy industry even up until very recently, you’re looking at 3 to 5 years before your health fails and down you go.

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With the amount that Boeing is contributing to the 401K’s(a LOT) they should be fine. Glad somebody finally talked some sense to the members of the Union who wanted to tell Boeing to pound sand.

Lifetime pensions are concrete shoes to companies.

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[quote]UtahLama wrote:
With the amount that Boeing is contributing to the 401K’s(a LOT) they should be fine. Glad somebody finally talked some sense to the members of the Union who wanted to tell Boeing to pound sand.

Lifetime pensions are concrete shoes to companies.[/quote]

UL:

I haven’t read any hard numbers; but I am willing to bet that the Boeing “match” is MUCH greater than the 0-3% match that the average person gets on their 401-K.

Also…this was a 49-51% Vote. There were a lot of Union Members (despite a pretty darn good offer from Boeing); who were willing to let them move to other States. (Whether of not this was a negotiating tactic by Boeing, who can say…but the numbers Boeing presented didn’t lie).

I also read that a lot of municipalities are switching to 401-K’s.

It will be interesting to see what the Unions do.

Mufasa

(P.S. Pensions are alive and well for the Federal Employee, even though the Postal Service is facing some tough choices…and I know…it’s not “truly” a Federal Agency. I say “…If it looks like a Duck…”)

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[quote]Mufasa wrote:

(P.S. Pensions are alive and well for the Federal Employee, even though the Postal Service is facing some tough choices…and I know…it’s not “truly” a Federal Agency. I say “…If it looks like a Duck…”)[/quote]

If there’s one reason to work for the gov’t–or state institutions–it’s the benefits. It damn sure ain’t the pay. The university I’m at gives their faculty 8-10% gross pay match on 401s. Faculty is required to drop 5% salary into the 401, the university adds 8+%. That’s a pretty damn sweet deal if you ask me.

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[quote]Mufasa wrote:

[quote]UtahLama wrote:
With the amount that Boeing is contributing to the 401K’s(a LOT) they should be fine. Glad somebody finally talked some sense to the members of the Union who wanted to tell Boeing to pound sand.

Lifetime pensions are concrete shoes to companies.[/quote]

UL:

I haven’t read any hard numbers; but I am willing to bet that the Boeing “match” is MUCH greater than the 0-3% match that the average person gets on their 401-K.

Also…this was a 49-51% Vote. There were a lot of Union Members (despite a pretty darn good offer from Boeing); who were willing to let them move to other States. (Whether of not this was a negotiating tactic by Boeing, who can say…but the numbers Boeing presented didn’t lie).

I also read that a lot of municipalities are switching to 401-K’s.

It will be interesting to see what the Unions do.

Mufasa

(P.S. Pensions are alive and well for the Federal Employee, even though the Postal Service is facing some tough choices…and I know…it’s not “truly” a Federal Agency. I say “…If it looks like a Duck…”)[/quote]

My municipality had gone the 401K route and then moved back to a defined benefit pension.

It’s hard to explain as I contribute to the defined benefit plan as does the FD. I also have something similar to a 401K through the FD that I can put pre-tax dollars into also.

I like the way it is set up, since I contribute I have an interest in what the funds are doing and if I will have enough to retire. I don’t agree with the old style of pension (like California’s) where the employee contributes nothing.

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[quote]Mufasa wrote:

[quote]UtahLama wrote:
With the amount that Boeing is contributing to the 401K’s(a LOT) they should be fine. Glad somebody finally talked some sense to the members of the Union who wanted to tell Boeing to pound sand.

Lifetime pensions are concrete shoes to companies.[/quote]

UL:

I haven’t read any hard numbers; but I am willing to bet that the Boeing “match” is MUCH greater than the 0-3% match that the average person gets on their 401-K.

Also…this was a 49-51% Vote. There were a lot of Union Members (despite a pretty darn good offer from Boeing); who were willing to let them move to other States. (Whether of not this was a negotiating tactic by Boeing, who can say…but the numbers Boeing presented didn’t lie).

I also read that a lot of municipalities are switching to 401-K’s.

It will be interesting to see what the Unions do.

Mufasa

(P.S. Pensions are alive and well for the Federal Employee, even though the Postal Service is facing some tough choices…and I know…it’s not “truly” a Federal Agency. I say “…If it looks like a Duck…”)[/quote]

In a previous thread a link was posted saying that Boeing was offering 15K a year to the 401K + up to a 8% match.

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[quote]lanchefan1 wrote:

[quote]Mufasa wrote:

[quote]UtahLama wrote:
With the amount that Boeing is contributing to the 401K’s(a LOT) they should be fine. Glad somebody finally talked some sense to the members of the Union who wanted to tell Boeing to pound sand.

Lifetime pensions are concrete shoes to companies.[/quote]

UL:

I haven’t read any hard numbers; but I am willing to bet that the Boeing “match” is MUCH greater than the 0-3% match that the average person gets on their 401-K.

Also…this was a 49-51% Vote. There were a lot of Union Members (despite a pretty darn good offer from Boeing); who were willing to let them move to other States. (Whether of not this was a negotiating tactic by Boeing, who can say…but the numbers Boeing presented didn’t lie).

I also read that a lot of municipalities are switching to 401-K’s.

It will be interesting to see what the Unions do.

Mufasa

(P.S. Pensions are alive and well for the Federal Employee, even though the Postal Service is facing some tough choices…and I know…it’s not “truly” a Federal Agency. I say “…If it looks like a Duck…”)[/quote]

My municipality had gone the 401K route and then moved back to a defined benefit pension.

It’s hard to explain as I contribute to the defined benefit plan as does the FD. I also have something similar to a 401K through the FD that I can put pre-tax dollars into also.

I like the way it is set up, since I contribute I have an interest in what the funds are doing and if I will have enough to retire. I don’t agree with the old style of pension (like California’s) where the employee contributes nothing.[/quote]

That could change here this year. San Jose Mayor Chuck Reed is trying to get a ballot referendum where voters could change Union worker pensions and benefits.

San Jose Mayor and pension reformer Chuck Reed, who spearheaded the successful passage of the cityâ??s Measure B pension reforms with 69 percent of the vote in favor, is launching a statewide pension reform initiative along with four other California mayors. Reed, along with San Bernardino Mayor Pat Morris, Pacific Grove Mayor Bill Kampe, Anaheim Mayor Tom Tait, and Santa Ana Mayor Miguel Pulidoâ??all of whom are Democrats except for Tait, who is a Republicanâ??filed the measure, known as â??The Pension Reform Act of 2014,â?? with the California Attorney Generalâ??s Office yesterday. The constitutional amendment would allow the state and local governments within California to reduce public employeeâ??s pension benefits on a go-forward basis. Under the measure, all benefits earned by existing employees up until the enactment of the measure, if passed, would be protected, but future, unearned benefits could be reduced.

It seems no politician wants his name attached to a bankruptcy label, no matter how loud Unions scream.

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Great points.

This issue (unlike many) is that the numbers don’t lie. Companies and Municipalities were (and are) being crushed under the weight of benefits (mostly pensions and medical). Neither has the luxury to either print money and/or deficit spend like the Feds.

Some appear to be trying some innovative things (like Aragorn’s University and lanchfan1’s municipality); but the “status quo” appears dead (in terms “old style” pensions).

Mufasa

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[quote]BlueCollarTr8n wrote:
IMO…with the exception of some unions the private sector has eliminated ‘defined’ pensions. I’m 50 and have never worked at a company that offered one. I think when one does the math, the question is: If the median annual income is currently $40,000 yr, 50 years of work totals 2 million, and an individual needs between $500,000 and a million saved plus social security and medicare for a decent retirement. What are the odds that the majority of people will be able to pull it off? [/quote]

I started working for a big defense contractor when I was 25. Whatever they offered, I took. I signed up for everything under the sun. They have had good long term contracts and they’re still coming. Over the years, the company name has changed about 8 times. We went from 6500 employees down to 250 and now with mergers/acquisitions, we number 40,000. Many of us have received large infusions to our retirements, we were at one time an ESOP (employee stock ownership plan) and they had to pay us out when one division was sold off.

My projected income for age 65-90 is well over $100k, but I have to pay taxes on some of it. I have a wealth management advisor and I do take his advise. He says I’m doing better than 80% of people my age who will retire when I do.

I really don’t know how other people can ever retire. Most people will retire with less than $60k in savings. I know of places in Florida where you can get a decent place to live cheaply. A couple with just Social Security would be able to just scrape by.

The day of the pension is in the past. Most union jobs that do offer a pension use an annuity to get the members there. Pension loads make companies difficult to sell and when you’re in the defense business, everyone is fair game at any time. I think we’ll get some sort of offer to convert our pensions within a couple of years.

Rob

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You do not want to know how these pension liabilities are figured out. I understand the math and the data, but it takes a professional actuary to actually get through it all.

It basically has a lot of assumptions:

Here are the following assumptions:

-Number of people in the plan
-Years of service OR amount of yearly salary, depending on what is the basis for their pension
-# Years the person will receive the pension (i.e. how long will they live)
-# of individuals who fail to meet pension requirements (i.e. number of years worked)
-Expected Rate of Return <—this is one of the biggest doozies here
-Liability time period (i.e. do you want to figure out your pension liability for next year or long term?)

Put all of this into a formula (and I think there might be some other factors I can’t think of off the top of my head) and you get how much money you need to have in the plan today to be fully funded at some future point.

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[quote]ZJStrope wrote:
You do not want to know how these pension liabilities are figured out. I understand the math and the data, but it takes a professional actuary to actually get through it all.

It basically has a lot of assumptions:

Here are the following assumptions:

-Number of people in the plan
-Years of service OR amount of yearly salary, depending on what is the basis for their pension
-# Years the person will receive the pension (i.e. how long will they live)
-# of individuals who fail to meet pension requirements (i.e. number of years worked)
-Expected Rate of Return <—this is one of the biggest doozies here
-Liability time period (i.e. do you want to figure out your pension liability for next year or long term?)

Put all of this into a formula (and I think there might be some other factors I can’t think of off the top of my head) and you get how much money you need to have in the plan today to be fully funded at some future point.

[/quote]
Correct.

It is a massive clusterfuck to be crass about it. A “best guess” that is likely FUBAR upon arrival.

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[quote]countingbeans wrote:

[quote]ZJStrope wrote:
You do not want to know how these pension liabilities are figured out. I understand the math and the data, but it takes a professional actuary to actually get through it all.

It basically has a lot of assumptions:

Here are the following assumptions:

-Number of people in the plan
-Years of service OR amount of yearly salary, depending on what is the basis for their pension
-# Years the person will receive the pension (i.e. how long will they live)
-# of individuals who fail to meet pension requirements (i.e. number of years worked)
-Expected Rate of Return <—this is one of the biggest doozies here
-Liability time period (i.e. do you want to figure out your pension liability for next year or long term?)

Put all of this into a formula (and I think there might be some other factors I can’t think of off the top of my head) and you get how much money you need to have in the plan today to be fully funded at some future point.

[/quote]
Correct.

It is a massive clusterfuck to be crass about it. A “best guess” that is likely FUBAR upon arrival.
[/quote]

Beans, why can’t they fund a pension as they go? What is the difference between paying into a 401(k) and paying into an annuity (financially)? In fact, I thought ERISA required adequate funding of a plan. I think its insane to assume things but it should be relatively easy to fund as you go, unless you are just self-funding and looting the pension plan, or maybe a crash like 2008 wipes out the fund or the annuity/insurance company finding the plan.

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[quote]jjackkrash wrote:
Beans, why can’t they fund a pension as they go? What is the difference between paying into a 401(k) and paying into an annuity (financially)? In fact, I thought ERISA required adequate funding of a plan. I think its insane to assume things but it should be relatively easy to fund as you go, unless you are just self-funding and looting the pension plan, or maybe a crash like 2008 wipes out the fund or the annuity/insurance company finding the plan.

[/quote]

If you are simply talking about paying out the pensions owed for the current year you are in, yes, it’s not to difficult. The issue is that Pensions need to be fully funded in present value. And as you can see in my previous post, what your future liability will be is always a prediction.

In fact, I think the rule right now is all pensions need to be fully funded. I think at one time, this was not the case. I think it may have been like 80 or 90% funded was ok.

So if you know anything about the time value of money, then all the liability that’s due within a year or 2 is pretty much accounted for. When you start funding a liability that is 20, 30, 40 years out, that’s where it get’s tricky.

Let’s say your liability today is $100M. And let’s assume $50M of that is due over the next 5 years. You’re pretty golden there. But the requirement is fully funded. Well What I really owe in years 6-30 is something more in the line of $200M. But I make an assumption of a 5% rate of return, so I calculate, today, $50M will full fund the additional $150M from years 6-30.

If I were to fully fund that, I would lose out on $100M of capital I can use to run/expand the business, and this money will be tied up for many years. The opportunity costs would be astronomical.

I hope this makes sense? It makes no business sense to FULLY FUND a pension given the time value of money, otherwise, they would just write you a check.

EDIT: 401k vs annuity.

A 401k is a self (employee) directed retirement fund. I take my money (pre-tax for traditional, after tax for ROTH), put it into a fund, and then it gets invested. The company typically matches 50-100% of your investment up to 3-6% of your salary. Pretty standard here.

So there is no liability for the company. In fact, this is almost like “pay as you go.”

Paying into defined pension, on the other hand, means there is a defined amount of money going to be paid to the employee at some point in perpetuity. Then, they use all the data given to calculate how much money will be needed to BREAK EVEN at the time of the employee’s death.

In the case of a company purchasing an annuity from an insurance company, the goal here is (which is the same for EVERY INSURANCE COMPANY IN EXISTENCE) is similar to the previous, except, the insurance company doesn’t want to break even. They want to make money. So it’s gambling. They say “give me $XXX and we’ll give you $XXX over the course of a time period or in perpetuity.” They are betting they will pay out less to you than they got from you + how much they earned from investing the money you gave to them. Insurance is always gambling and the house almost always wins.

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Pensions fail when you tie them to ONE company. I’m an IBEW Local 26 member and our pension fund is rock solid. We have over 250 signatory contractors and our pension contribution is paid for in our hourly agreed rate (which is above and beyond what I see in the envelope). The solvency of the pension is managed by the UNION, not the company. We (every member) get quarterly reports and annual summaries of all of the funds and how they are invested. Complete transparency. It can be a good thing if structured properly. I am not tied to any single company’s fortunes.

Also, the pension is a relatively low number because in addition to our pension, we have an annuity that is similar to a 401K that we have control over. For every hour I work, $4.10 gets invested in my annuity automatically. Again, this is above and beyond the pension allocation or my health insurance.

Why do companies pay all that? Because we put out an outstanding product: we are the BEST fucking electricians in the area. Non union contractor can’t touch us. I’ve been making chicken salad out of non union chicken shit for the better part of two decades. Our apprenticeship program is worth 90 college engineering credits. And if you fuck up, we kick you out. We have high standards. So contractors are HAPPY to pay for that quality, because we do it right and do it right the FIRST TIME.

Also, local 26 has a “no strike” clause in our contract. We are a very reasonable union and we resolve everything through mediation, not strong arm tactics. If more unions were like ours, they wouldn’t have such a bad name.