Wayne O'Leary

Amoral Corporations are the Real Scandal


There are scandals, and then there are scandals. At the moment, the mass media are focused on the Jack Abramoff lobbying scandal, a true disgrace to be sure, but one the likes of which come along every couple of decades, involving basic political corruption. Political scandals have a long and dishonored place in American history, with a lineage that goes back to Teapot Dome in the 1920s and the Tweed Ring in the 1870s; they are a regular feature of the governmental landscape, and they arise from our chronic inability to divorce money from politics.

The Abramoff scandal, a natural outgrowth of one-party rule in the sense that absolute power corrupts absolutely, will evolve in due course, taking down a substantial portion of the GOP congressional membership and perhaps wending its way into the bowels of the Bush administration. The related collapse of the "K Street Project," a brazen attempt to make special-interest lobbyists (whose numbers have doubled since 2001) an arm of the federal government in the service of the Republican agenda, can only serve the public good; it will expose the rottenness at the core of Washington's conservative revolution and go some distance toward cleaning it up -- if only temporarily.

Unfortunately, there is an even bigger scandal brewing that the Abramoff investigations will not touch, and it involves not political machinations, but corporate policy. The word scandal has broad meaning. The Oxford English Dictionary calls it "a grossly discreditable circumstance, event or condition of things" and an "offense to moral feeling or sense of decency." By this definition, nothing on the horizon is more genuinely scandalous than the unraveling of the social compact between American business and its workers, which is gaining momentum on an almost daily basis.

Beyond a paycheck, Americans have been accustomed, at least since the Second World War, to depending on their private-sector employers for two additional things -- health coverage and a retirement pension -- the unspoken quid pro quo being hard work and company loyalty. These traditional job benefits are now seriously at risk, put there by a mad pursuit of profit that is rationalized by the supposed need to remain "competitive" in a globalized economy. Worse, their imperilment has been consciously permitted by an administration and Congress disposed to excuse the perpetrators or ignore the problem altogether.

Corporations started phasing out defined-benefit (DB) pensions as a cost-saving measure around 1985, barring new employees from participation and shifting them instead to the unpredictable quasi-pensions known as defined contribution plans (the infamous 401(k)s). They subsequently began freezing DB pensions for longtime employees, gradually forcing them into 401(k)s as well, a trend that has accelerated in recent years, with half of all US firms signing on in the past decade. The upshot is that while three-quarters of American companies still have lingering DB-fund obligations outstanding on their books, only 13% of currently active workers actually have DB pensions, down from 60% in the 1970s.

What's more, the DB pensions remaining to be paid out are at risk from "underfunding." That is, they are not backed by sufficient monies to cover them, because firms willfully neglected to put aside the necessary funds in a timely fashion. (They apparently had better uses for the money.) At last calculation, the federal Pension Benefit Guarantee Corporation estimated the underfunding at $450 billion, or 32% of combined liabilities.

Job-related health plans, especially those for current or future retirees, are in a similar fix. Credit Suisse First Boston, which monitors them, says that 80% of these plans are underfunded -- to the tune of $300 billion. Pension liabilities can be legally avoided only by firms declaring Chapter 11 bankruptcy, an expedient numerous companies have resorted to recently. Health plans, on the other hand, have no federal funding requirement and can be arbitrarily canceled at any time. Whereas 69% of employers were providing medical coverage in 2000, just 60% are still doing so today.

Naturally, the irresponsible corporate citizens who are cutting or eliminating pensions and health coverage have a rationale. It's all about globalization (the globalization corporate America championed), they say. They must cut costs to remain viable in the world market, they argue. To hear America's cash-flush corporations -- the Fortune 500 had a record $514 billion in combined profits in 2004 -- tell it, they are nearly on the rocks, and it is their overly generous "legacy costs" that are to blame. It sounds plausible, but it's not. In truth, the rending of the private-sector safety net is a classic tale of mismanagement and greed.

Underfunding of pension and health plans, a result of neglected company contributions, unprofessional accounting methods and excessive investment of funds in the volatile stock market rather than the safer bond market, is bad enough; it represents a clear breakdown in fiduciary responsibility. Outright abandonment of health plans and cost-shifting replacement of real pensions with faux pensions that are really risky investment vehicles is worse: It's a pure management money-grab lacking even the pathetic excuse of administrative incompetence. Of six major corporations announcing an end to traditional pensions within recent weeks (IBM, Motorola, Lockheed Martin, Sears Roebuck, Hewlett-Packard and Verizon), only one (Sears) is losing money. These companies are opting out of their solemn promises not because they have to, but because they can.

There already exists a federal law meant to address pension security. The Employee Retirement Income Security Act of 1974 (or ERISA) requires obvious strengthening and/or better enforcement in the area of underfunded pensions; it also needs crucial updating by the addition of a new section mandating the provision of full, lifetime DB pensions by all companies above a certain size. A similar health insurance mandate is worth considering as well, but persistent, uncontrolled inflation in medical costs, which affects companies as well as individuals, suggests health coverage would be best handled separate from employment and entirely outside the market system, through a government-based national health insurance program.

One way or another, the scandal of disappearing pensions and health benefits, the real scandal of our time, has to be rectified.

Wayne O'Leary is a writer in Orono, Maine.

From The Progressive Populist, March 1, 2006

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