Striking Boeing workers put spotlight on pensions

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More than 30,000 Boeing machinists have been on strike for nearly six weeks. On Wednesday, union members rejected a second contract by a two-thirds margin. Now, it looks like the strike will go on a while longer.

The sticking point? A defined-benefit pension plan, which Boeing suspended a decade ago in favor of defined-contribution, or 401(k), retirement plans. Boeing machinists want their old pension back.

The shift in the private sector from pensions to 401(k)s has been going on for decades, but now there’s more pushback from workers and unions. Many experts say the change to 401(k) plans have left millions of people unprepared financially for retirement, thanks to stock market declines, high fees and longer lifespans, among other issues.

And the pressure to bring back pensions isn’t just in the private sector. State and local governments have been feeling it as well. 

While defined-benefit pensions are more common in government—think unionized workers like teachers—they are rarer than they were nearly two decades ago when efforts were made to limit and reform pensions following the Great Recession. Global stock market declines between 2007 and 2009 slashed assets by a third.

In the aftermath, thousands of governments enacted pension reforms and cuts—freezing or eliminating cost-of-living increases, raising the retirement age, and reducing employer and hiking employee contributions. They also created different benefits for new employees. 

The reforms largely worked. Pensions now have 74% of the assets they need to meet all their future unfunded liabilities, and the Equable Institute, a bipartisan nonprofit that promotes public sector retirement security, predicts that will rise to 80% this year.

But as state and local governments face a tight labor market, a few are rethinking pensions in a bid to recruit and retain talent.  

Lawmakers in New York state, for instance, rolled back reforms enacted in 2012, and Rhode Island has similarly reversed some of the changes it made, repealing the suspension of full annual cost-of-living adjustments for state employees who retired before 2012 and lowering the funding threshold for reinstating COLAs to 75% from 80% for those who retired after July 1, 2012. 

The moves led Fitch Ratings this week to raise a flag of caution. 

“Enacted and proposed actions that offer more generous benefits will lead to higher required contributions and liabilities in the short term and could affect long-term credit stability if states adopt additional rollbacks to the early 2010s pension benefit revisions over the next few years,” said the ratings agency.

In addition to the changes in New York and Rhode Island, Fitch also noted that pension changes have been discussed in Illinois. And this week, a bill that would give pension increases to more than 60,000 retired school and government workers passed the Pennsylvania House by a comfortable margin. If passed, opponents warn it could saddle taxpayers with a $1 billion bill.

“More recently, those of us on the states team have seen increasing evidence bubbling up that there has been an impetus to revise these changes, spurred, in part, by the rise in inflation and a tight labor market,” said Douglas Offerman, senior director of public finance at Fitch Ratings. 

“In general, we would argue that the changes that have been made have positioned pensions to be more stable and less of a risk going forward,” he added.

That doesn’t mean state and local governments can take their foot off the gas pedal. States have indeed narrowed the gap between promised pension benefits and money set aside to pay for them, but the shortfall still amounted to $836 billion in fiscal year 2021, according to the Pew Charitable Trusts.

“Pensions are not flashing red at the magnitude they maybe once were,” Tom Kozlik, head of public policy and municipal strategy at HilltopSecurities, told Route Fifty last year. “But it's absolutely not the time to no longer care about pensions just because the overall funding levels are a little stronger.”

“If governments make changes that increase their liability, that would create challenges over time,” said Eric Kim, senior director and head of the U.S. States Rating team at Fitch Ratings. “We are flagging, as enhancing benefits could put pressure down on ratings.”

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Government in Numbers

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