Last week, I was privileged to sit in the front row of the White House’s South Court Auditorium to watch President Biden announce that $36 billion would be distributed to the Central States Pension Fund to prevent cuts of up to 60% in the pension benefits of 350,000 Teamsters and Teamster retirees.
These funds were provided under the Butch Lewis Emergency Pension Plan Relief Act, which was a part of the American Rescue Plan passed in 2021. The Act ensures the solvency of more than 200 financially troubled multiemployer collective bargained pension plans. As a result, between 2 and 3 million workers and retirees will receive the full pension benefits they were promised at least through 2051 rather than suffering potentially disastrous benefits cuts that could have left them struggling financially in retirement.
This landmark event highlights one of the biggest threats to the American middle class, as well as an important consequence of the decline in U.S. union density: America’s gaping pension gap. Updating earlier data I described in an earlier article, about 32% of employees in the United States in 1975 (about 29% of the total U.S. civilian labor force) had private-sector pension plans. These were largely, but not exclusively, employees with union representation. Union density in 1975 was estimated to be 22%. In 2019, slightly more than 7.5% of active employees (around 7% of the total civilian labor force) had private-sector pensions --- again, mostly union-represented employees. Union density had been cut in half to 10.3%. Almost 51 million employees in the United States would have had pensions—roughly 39 million more workers than have pensions today --- if private-sector employers had provided pensions to the same percentage of their employees in 2019 as they had in 1975. So, there was never a time when every worker had a pension, but pensions provided one essential building block of middle-class life in America: the ability to retire after many years of work and enjoy a modicum of economic security.
Social Security benefits are essential, but insufficient. On average, they replace only about 40% of preretirement income, although with wide income-based variations. So, the large majority of older workers seeking to sustain their preretirement lifestyles need more retirement income. Employer-provided retirement plans are one important source of that income, but the type of plan matters immensely. Defined-benefit pension plans provide regular, reliable payments in predictable amounts for the rest of beneficiaries’ lives. However, absent a union, and even in some unionized workplaces, employers have abandoned DB plans for defined-contribution schemes, like 401(k) plans.
DC plans merely give participants the opportunity to save money for retirement out of their current earnings, perhaps augmented by an employer match. Employees bear all the risks: choosing the amount of savings, investing their savings (either actively or by default), and trying to figure out how to avoid outliving their money. Most important, defined-contribution plans do not guarantee sufficient savings or produce a predictable and protected lifetime income stream, like a pension would. So, workers cannot be assured they will be able to continue their lifestyle in retirement. Only a pension or something like it can do that.
Last week’s White House event shows the importance of unions to their members and retirees. Unions gave them the voice they needed to secure their pensions and those of millions of other workers. But it is also worth taking the opportunity to note one piece of damage caused by the decline in union voice in the workplace and our society: financial insecurity in retirement for many tens of millions of other Americans.