Teresa Ghilarducci's Labor's Capital: The Economics and Politics of Private Pensions
Brand, H.
LABOR'S CAPITAL: THE ECONOMICS AND POLITICS OF PRIVATE PENSIONS, by Teresa Ghilarducci. The MIT Press, 1992. 213 pp. $35. This is a well-written, well-argued book. It is a critical assessment of...
...that proportion, which more than doubled between 1945 and 1970, has not changed since...
...underfunding shifts corporate obligations to the Government (the PBGC...
...Unforeseen when the two agencies were created was the enormous rise in the role of pension funds in corporate financial strategy, as the stock market boom raised pension fund values during the 1980s...
...But inequities also exist within the private pension system...
...The Taft-Hartley Act and Supreme Court decisions confirmed pensions as a legitimate subject of collective bargaining...
...The disparity between benefits received by these employees and benefits received by the average worker by far exceeds the differences between pre-retirement earnings...
...Her book may be read as a cogent argument for such a scheme...
...To that end she advocates a mandatory universal pension system that would, in effect, envelope the Social Security system...
...pension funds may be invested in socially unredeeming projects...
...If a deep recession occurs and bankruptcies spread, federal pension insurance will not suffice...
...The current struggle over provision of health-care reaffirms the power of the private insurers and other private interests...
...Pension funds are autonomous entities, subject, to be sure, to far-reaching corporate business incursions but also to a measure of regulatory control...
...The private pension system grew in response to federal anti-inflationary policies during World War II...
...Its exemption from federal income tax cost an estimated $53 billion in 1991...
...The surplus assets were not passed on to beneficiaries in the form of higher wages or invested in more productive plant and equipment, but were used mainly in buyouts, increased shareholder dividends, and other forms of financial manipulation...
...Ghilarducci wants to do away with the notion of property rights pertaining to the private pension system and shift to social needs criteria...
...Ghilarducci recommends the "gradual democratization and replacement of the voluntary private pension system" by "a nationalized and universal advance-funded scheme...
...She believes that the pension fund industry—banks, insurance companies, money managers—could hardly object to so small a share of assets being devoted to a "social capital development fund...
...The Employment Retirement Income Security Administration (ERISA) and the Pension Benefit Guaranty Corporation (PBGC), ERISA's pension insurance arm, were created in 1974...
...To that end, the commission proposed a mandated minimum universal pension system...
...Books WINTER • 1994 • 155...
...Women with work experience are far less likely to be entitled to a pension than men, and black workers less likely to be entitled than white workers...
...The Great Depression ended that era...
...it will either have to be supplemented by Congress or be reduced, and so will benefits...
...The average worker's pension benefits equal 15 percent of pre-retirement income...
...They set standards governing the funding of pensions, insure against loss of benefits due to bankruptcy or other factors, and keep workers informed of their pension rights...
...Subsequently, pensions became major issues in collective bargaining: business did not want to concede this benefit to the unions, while unions felt compelled to make pensions a subject of collective bargaining inasmuch as adequate Social Security measures had been repeatedly delayed by Congress...
...The PBGC has estimated that it is exposed to underfunding of pension plans amounting to $12 billion (and in the longer run more than four times higher), chiefly in such declining areas as steel, tire, automobile, and airline industries...
...She would, as a beginning, set aside 10 percent for pension fund investment in social capital, such as affordable housing...
...The American worker was . . . faced with the question of awaiting Congressional action or attempting to win some of these benefits through collective bargaining," stated the CIO in its official journal in 1949...
...The practice has declined in recent years as public censure has asserted itself and surplus assets have shrunk...
...The commission took the conventional view that Social Security benefits should provide no more than a minimum base of income, and that the difference between that and the desired retirement income should come from personal savings and private pensions...
...Finally, only about 29 percent of all aged persons actually receive pensions, compared with 92 percent who receive Social Security...
...Ghilarducci pointedly argues against the unions' position that private pensions are the property of labor...
...The private pension system is quite costly in 154 • DISSENT terms of public funds...
...The taxpayer's largesse warrants a reevaluation of the private pension system's merit...
...High excess profits taxes were levied on business, which, however, escaped them by sheltering excess earnings in (untaxed) pension trusts...
...Nevertheless, the authority of the regulatory agencies was weakened, and confidence in the security of the private pension system undermined...
...WINTER • 1994 • 153 Books those of the more privileged employee, 25 percent...
...And this all the more so as underfunding looms as a very large financial problem for the PBGC, Congress, and the federal government...
...It is a critical assessment of the private pension system and an account of its transformation into a major element of capital accumulation and corporate finance strategy...
...The commission's proposals came to naught...
...and would thus also enlarge the savings (or capital) pool available for public investment...
...After 1950, pensions became a minor source of labormanagement conflict...
...This position has no firm legal or institutional basis...
...It is too optimistic an assumption...
...It would be advance-funded (not financed on a pay-asyougo basis), which would minimize the intergenerational transfers of income that have become politically burdensome to Social Security...
...Persuasive as her arguments are, and important as it is to back them in the interest of working people, they stand little chance of being realized...
...Federal regulation of the private pension system arose in the wake of the bankruptcy of the Studebaker Corporation in 1964 and the cutoff of pension payments to its workers...
...The private pension system thus has given rise to great inequities between covered and uncovered workers...
...President Jimmy Carter's Commission on Pension Policy held that the standard of living of retired persons should not be lower than what it was prior to retirement...
...The disparities represent "one of the most regressive aspects of pension plan provisions," although the unions often negotiate benefit formulas unrelated to earnings, or formulas that are progressive, that is, which replace a higher proportion of lower-paid workers' pre-retirement earnings than those of higher-paid workers...
...Private pensions contributed only 8 percent to the aggregate income of elderly persons (65 and over) in 1988 (latest available data), as against 38 percent for Social Security...
...Benefits go disproportionately to the more privileged strata of employees...
...Elderly persons with annual incomes less than $10,000 received 4 percent or less in private pension, and three-fifths or more of their income in Social Security payments...
...Wage controls steered collective bargaining toward winning fringe benefits, including pensions...
...It is worthwhile to examine what adequacy in terms of a retirement income has meant...
...The author devotes a large part of her work to the possibilities of pension reforms that will benefit the mass of workers excluded from the system...
...in 1940, only 17 percent of all full-time workers were covered by private pensions...
...Ghilarducci estimates that beneficiaries lost 50 percent of their benefits when their plans were replaced with inferior ones...
...All this involved the termination of well over 2,000 pension plans covering 2.4 million people...
...Corporate control over the pension funds was evidenced dramatically by the wave of appropriations of pension asset "surpluses" —the excess of asset values over liabilities (such excess having been enlarged by the stock market boom...
...As Ghilarducci observes, "The fact that a voluntary private pension system is enormously expensive to the taxpayer is contradictory: If a system is private, why does it involve so much public support...
...However, the growth of a private system of social insurance at best retarded the evolution of Social Security in providing adequate retirement income, and virtually prevented the creation of a national, single-payer health-care system...
...Little more than one-half of all full-time workers are covered by pensions...
...Ghilarducci argues that the evolution of private pensions in the United States has stymied the adoption of an adequate universal system of social insurance...
...Her book, then, seems mistitled, unless Labor's Capital is understood as an assertion that pension assets represent the fruit of the labor of society as a whole...
...Private pensions were originally intended as a means to tie favored workers to companies— they began as a feature of "welfare capitalism...
Vol. 41 • January 1994 • No. 1
