Hey there, time traveller!
This article was published 29/12/2013 (1119 days ago), so information in it may no longer be current.
Boeing Aircraft and the International Association of Machinists are locked in a struggle over pensions this week. The outcome may show which way the wind is blowing in retirement income for workers in the United States and Canada.
Boeing will start building its 777X models in 2017, and the orders are already coming in. The design features wings that extend in flight and retract on the ground to increase efficiency. The 350-seat X8 would have a range of 17,220 kilometre while the 400-seat X9 would have a range of 15,185 km.
The 777 models now in production are made at the company's 31,000-worker plant in Everett, Wash., where the machinists' union, the IAM, represents the workers. Boeing, the state's largest private-sector employer, employs 84,442 people in Washington. When the company in November asked the workers at Everett to agree to phase out their defined-benefit pension plan and replace it with a defined-contribution plan -- known in the U.S. as a 401(k) -- they emphatically said no. The company said it might move the plant. The 22 states who made proposals have been narrowed down to a short list including Missouri and California.
The company, meanwhile, slightly sweetened its contract offer. The IAM may hold another vote in early January.
Boeing moved its head office from Seattle to Chicago a dozen years ago. That was a huge blow to Seattle's self-esteem and a painful loss of head office jobs, but at least all the manufacturing work stayed put. Ever since then, Seattle and Washington State have been nervously watching for signs that aircraft production work would also be moved. Now, that nightmare scenario may be coming to pass in the context of a struggle over pensions.
Defined-benefit pension plans are attractive to workers because the sponsoring employer pays enough into the plan to finance the promised benefits, even if employee contributions and investment income fall short of expectations. For the same reason, however, they can be surprisingly costly for employers. Weak investment returns in the years 2008 to 2012 convinced many employers in Canada and the U.S. that they should wrap up their defined benefit plans and replace them with defined contribution plans. In a defined-contribution plan, the sponsor makes no promise about the amount of benefit that will be paid. The benefits for a plan member are calculated when the time comes, depending on the value that has been accumulated. Plan members enjoy the happy results if the investment returns have been high, but they also assume the risk that small investment returns will lead to small pension benefits.
Investment returns were suddenly looking rosier as 2013 drew to a close. The return on the 10-year U.S. Treasury Bond flirted with the three per cent level and the stock indexes were making new highs. This might encourage Boeing to keep its defined-benefit plan going a little longer, but it might also encourage workers to accept the switch to a defined-contribution plan. The company would face heavy costs to make a fresh start in Missouri or California, though those states would be happy to help ease the pain.
In Canada, the disappearance of company pension plans has increased the proportion of working people who will reach retirement age with only their Canada Pension Plan benefits and their old age security to finance their late years, and for many that will entail a sharp drop in income. Ottawa and the provinces are still debating whether to expand the Canada Pension Plan or offer some new voluntary retirement saving system to fill the retirement income gap.
In the Boeing case, a great company has to decide how badly it really wants to wrap up its defined-benefit pension plan. A huge group of workers has to decide whether a scaled-back pension plan is better than no job. The result may help shape the pension debate throughout North America.