With Pensions Poised to Make a Comeback, Increased Unionization is Key

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• On: 01/03/2024 19:47:19
• In: News
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By: Hank Kim, NCPERS

With IBM's recent headline-making move to bring back its defined benefit plan, are pensions poised to make a comeback? Only time will tell, but there are some important lessons we can learn if we look back in time and pay attention to some key social and economic indicators.

Forty years ago, IBM was also a ‘trailblazer' in the benefits space, as it was one of the first companies to offer a 401(k)-style retirement plan. Now, the company is garnering attention for its switch to what it's calling a “retirement benefit account,” essentially a fixed-rate cash balance plan where the company contributes five percent of worker's pay into a defined-benefit instrument with guaranteed returns tied to a benchmark. IBM has a $3.5 billion surplus in its DB plan, which it can use to pay for these contributions while improving its bottom line.

The switch has been met with mixed reactions from current employees, as the move seems to most benefit those who have not been contributing to a retirement account. Ultimately, though, the move could hurt its employees as they miss out on potentially higher investment returns from investing in stocks and bonds.

While it's far from perfect, it has created media buzz around the ‘resurgence' of pensions. Job seekers are demonstrating a renewed interest in the benefits employers are offering, and retirement security (or lack thereof) is increasingly on the minds of younger Americans skeptical of the reliability of Social Security.

Over the past three years, job seekers on Indeed have increased searches for ‘pensions' by 12 percent. The number of job postings on the site that mention ‘pension' have increased approximately 130 percent in that same time period. Further, employers offering pensions are also consistently receiving higher ratings on Glassdoor.

While this renewed interest in bringing back pensions is a positive sign, the key will be to ensure that the evolution of retirement benefits is ultimately in the best interest of workers, and increased participation in unions will be critical. IBM's headline-grabbing but questionable switch also highlights the need for workers to have a seat at the table to ensure changes to retirement benefits actually help improve employees' long-term retirement security.  

The latest Gallup polling shows that 67 percent of Americans approve of labor unions, but has that translated to increased engagement and participation? In 2022, the rate of unionization reached its lowest level on record with only 10.1 percent of U.S. workers participating in a union. Looking closer at the Gallup polls, the percentage of respondents indicating that no one in their household is a member of a labor union decreased from 82 percent in 2003 to 86 percent in 2023.

Yet, the overall support of unions seems to be growing. Thirty-four percent of respondents indicated unions will be stronger in the future and 43 percent would like to see labor unions have more influence than they do now—both record high numbers since 1999.

While union participation may be lagging, this support is actually quite significant. Looking back to the late 1930s, union membership jumped from just 13 percent to 27 percent in just two years. According to The New York Times' Noam Scheiber, “unionization is very much a social phenomenon: Workers see it succeed in one workplace, and then emulate it in their own, even if the law or employers aren't accommodating.”

We're already seeing major progress as this momentum builds. Michigan repealed the state's ‘right-to-work' law, marking the first repeal of this type in nearly six decades. Approximately 300 video game workers unionized at Microsoft—one of the biggest victories thus far at a major U.S. tech company. More than 8,000 Starbucks workers have voted to unionize while facing aggressive union-busting tactics. High-profile strikes in various industries repeatedly made headlines in 2023 as unions secured historic contracts for workers across the country. In several of these negotiations, pensions were once again on the table as many pushed for improved benefits.

Employers will likely remain skeptical of reopening their corporate pensions due to the perceived cost and contribution fluctuations, but it may just require a slightly different approach than before, according to a recent white paper from J.P. Morgan. The authors suggest there may be hidden benefits to reopening an overfunded defined-benefit plan, particularly when the defined contribution (DC) plan is maintained to allow for maximum flexibility.

Referring to the benefits an overfunded plan provides, the white paper authors argue that “the surplus can serve as a storehouse of value that sponsors can access at their discretion to fund retiree medical liabilities, backstop DC plan rollovers, finance mergers and acquisitions or potentially reinstate accruals for a frozen plan, among other benefits.” The authors also suggest that as more DB plans reach a surplus, they may benefit from future regulatory flexibility as legislative pressure grows to enable companies to tap into the value of those existing plans.

If the insights from the JP Morgan paper can be married to significant gains in the private-sector unionization, there can be increased retirement security in the private sector. Whether it's pushing for increased 401(k) contributions, higher wages, or reopening a pension, workers' voices need to be heard. Highlighting the success stories of collective bargaining agreements has been an important step in generating interest in union participation and support.

NCPERS is here to build on this momentum by continuing to advocate for improved retirement security in 2024 and beyond.