With cascading exposures of massive corporate fraud, we are hearing a lot about the impact on investors. Why should readers of the World care? Most are not Wall Street players.

But increasingly, working people have been forced to depend on the stock market and corporate profits for their retirement income. Now, many workers have found with a rude shock that the stock market and Corporate America are not only unreliable, but also riddled with corruption and fraud. Company pension funds, state and local government pension funds, union pension funds and individual 401(k) funds all rely on the stock market. Now they are taking a hit. While CEOs are walking away with fortunes, workers’ retirement incomes are on shaky foundations at best and in some cases have been wiped out.

In its July 8 issue, Business Week reported, “Since the start of the year, WorldCom stock has lost more than $40.4 billion in value. The biggest holders are all leading asset managers that run pension and mutual funds: Alliance Capital Management, Wellington Management and Barclays Bank.”

According to the July 9 Washington Post the state of Maryland’s pension system losses from WorldCom holdings totaled about $52 million – the worst loss ever – and this comes on the heels of $100 million in losses on Enron, Tyco and Global Crossing stocks.

The Post quotes a spokesperson for the $15 billion Iowa Public Employees’ Retirement System, which held $28 million worth of WorldCom bonds and $3.7 million in stock as of the end of May, as saying “We’re still trying to establish how much of that money we’ve lost. Most of it, I would say. We’ve been hurt.”

The Post also cites estimates by officials at the $34 billion Virginia Retirement System that unrealized WorldCom stock losses – losses aren’t realized until the stocks are sold – presently equal about $46 million, but will probably go higher.

“Since 2000, some $5 trillion in ‘wealth’ has evaporated from the stock market,” says a July 9 Labor Research Association (LRA) commentary.

As the losses mount, the question arises: what will happen if a pension fund cannot make its payments to retirees? State and local government pension funds are usually guaranteed by the state or local government. But what this means is, if the fund value were to drop to the point where the fund couldn’t meet its pension obligations, the government would have to raise the money from taxpayers – so working people would be hit either way.

Private company defined-benefit pension funds are guaranteed by a federal agency, the Pension Benefit Guaranty Corporation (PBGC). But that’s not always a sure thing these days. For example, the United Steelworkers of America filed a motion June 25 in U.S. District Court in Ohio opposing the termination of pension plans that cover USWA members at Republic Technologies International (RTI). The PBGC had asked the court to terminate company defined-benefit plans one month before the expected closure of all RTI facilities. The union says this would deny benefits to employees with 15, 20 or more years of service.

Over the past decade employers have shifted from providing guaranteed defined-benefit pension plans to offering “defined contribution” plans, generally referred to by their IRS category as 401(k) plans. Employers have been doing this, says LRA, not because the 401(k)s are good for workers but because they are cheaper to administer and offer the companies tax breaks.

As the AFL-CIO points out, defined-contribution plans do not provide a guaranteed level of retirement income, and offer no protection against Enron-type losses.

According to the Economic Policy Institute (EPI), about half of all households had a traditional defined-benefit pension plan in 1989, but by 1998 only one-third had such a plan. In the same period the percentage of households with the risky defined-contribution pension plan doubled from one-quarter to one-half.

The AFL-CIO is urging passage of S-1992, the Protecting America’s Pensions Act, introduced by Sen. Edward Kennedy (D-Mass.), aimed at protecting workers from having their pensions wiped out, a la Enron. Among other measures, the bill gives workers the right to sell company stock in a 401(k) plan and seeks to counterbalance employer pressures on workers to load up on company stock.

Such reforms are important. At the same time, the unfolding corporate crime spree exposes the dangers of tying workers’ retirement income to “greed-is-good” Wall Street.

We already have a model national retirement program to build on: Social Security – a guaranteed defined-benefit public social insurance fund that does not invest in the stock market. Currently, Social Security only replaces about 40 percent of a worker’s income, with the average benefit a little more than $800 per month – not enough to live on. The time may be ripe for a national campaign to strengthen and expand Social Security to provide a livable and stable retirement income for America’s workers and their families.

The author can be reached at suewebb@pww.org


Susan Webb
Susan Webb

Susan Webb is a retired co-editor of People's World. She has written on a range of topics both international - the Iraq war, World Social Forums in Brazil and India, the Israel-Palestinian conflict and controversy over the U.S. role in Okinawa - and domestic - including the meaning of socialism for Americans, attacks on Planned Parenthood, the U.S. as top weapons merchant, and more.