MARY LOUISE KELLY, HOST:
The United Auto Workers union is a big deal to President Biden. He wants to be known as the most pro-labor president in U.S. history. And today, at the White House, he did indeed offer full-throated support to the union, which kicked off a strike last night at midnight.
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PRESIDENT JOE BIDEN: Auto companies have seen record profits, including the last few years, because of the extraordinary skill and sacrifices of the UAW workers, but those record profits have not been shared fairly, in my view.
KELLY: Well, we're going to spend the next few minutes considering one piece of what the union is demanding - guaranteed pensions. This goes back to the 1960s, when the auto industry was booming and you got a job with a company like General Motors in your 20s and probably stayed there until you retired in your 50s or 60s, and you kept getting paid after you left.
Well, economist Allison Schrager does not think bringing back old-school pensions is a good idea. Schrager is an economist and a senior fellow at the Manhattan Institute, and we've got her on the line to ask why.
Allison Schrager, welcome.
ALLISON SCHRAGER: Thanks for having me.
KELLY: OK, why? Why are you not a fan of bringing back the old-fashioned pension? And I want to consider this from both sides. Start with the auto industry because that seems a more obvious case. I guess pensions are just really, really expensive?
SCHRAGER: Yeah, I mean, there's the case for the automakers and the autoworkers. And I don't think it really makes sense for either at this stage. I mean, pensions are very nice. I think anyone who has them is very lucky to have them, especially if they're worth a lot. They are still very popular in the public sector - like, teachers and firemen have them. And, you know, it's a very nice thing if your employer keeps paying you after you work. But that's very expensive because they're - really, what they're doing is they're bearing a lot of risk - the risk of how long you'll live if you end up living longer and the market risk 'cause they have to finance these pensions with investments.
While that's a nice thing, they actually pose more risks to workers than I think people often realize. First of all, I mean, there's a chance they won't do a good job managing that pension and - in which case, if the company goes bankrupt, they'll pawn the pension off, and you could take a big haircut on that pension. And that's not something you can save or sort of really insure against. So all of a sudden, you'll find you're retired. Then, all of a sudden, you get a 40% haircut in your pension. That is a big risk.
Also, they're not really worth that much if you think you're going to change jobs in your lifetime. So if you're a young autoworker, even, in an industry that's changing a lot - you know, might be going to electric vehicles, might be moving factories to the South - you really face the risk that this pension really won't be worth that much. And this is actually a big issue in the military as well and why they switched to 401(k)-like pensions for their younger people 'cause they found people not having sort of lifetime careers meant that they ended up with no retirement benefit at all.
KELLY: OK. So I - you've just told us a couple things, and I want to make sure I'm with you. One is you can have this pension that sounds really great on paper, but there's a risk, if the pension goes bust, that you are not going to get the payments that you were counting on. Is that right?
SCHRAGER: Yeah, it's way in the future, so there's always an incentive to underfund the pension. This used to be a bigger problem. Corporations now face more stringent accounting standards, so it's not as much of a problem as it used to be, but it still does happen because this is a big risk that's - it is a liability far in the future, and that tends to be a recipe for not good pension management.
KELLY: You also touched on something which speaks to how much has changed since the 1960s - which, as I mentioned, a lot of people may see as kind of the boom days for Detroit and for the auto industry - which is that pensions may not be great if you're going to change jobs early and often, which many more people do nowadays than they did a generation or two ago.
SCHRAGER: Yeah. I mean, we're seeing super long tenure and lifetime employment is becoming a lot less common. And I think that's also going to be more of a concern in the auto industry as well, just with a lot of the changes they're having. I mean, that's another reason why there's been a big decline in defined benefit plans, and they don't really exist so much in the private sector anymore. And I think that, certainly even in manufacturing, it'd become more of a concern with more automation.
KELLY: You wrote a piece about all this for Bloomberg Opinion, where you are a columnist, and I want to ask about one line - quote, "I strongly suspect that Shawn Fain" - this is the president of the UAW - "I strongly suspect that Shawn Fain knows a return to the era of defined benefit pensions is unlikely - that he's using the demand as a bargaining chip."
Why do you strongly suspect that?
SCHRAGER: Well, I feel like we went through this in the early 2000s - all these automakers getting out of their pensions. And that was considered, you know, a big win 'cause it was - made them so uncompetitive. So of all the things he could ask for, asking for this, which, one, doesn't really please younger workers 'cause there's a good chance they won't end up with a retirement benefit at all and something that's so expensive and has such a nasty history for the auto industry, it just seems like that would just, you know, be a real dealbreaker. So I imagine this is something he'll probably end up caving on.
KELLY: What should the union be negotiating for - if you could be in the room, advising them?
SCHRAGER: Well, I mean, I can see why they're trying to negotiate for a said higher salary, more paid time off. And, you know, they could even negotiate for more generous retirement benefits - more generous 401(k) contributions or even, ideally, when you have to turn those 401(k)s into retirement benefits after you die, maybe even an option to annuitize. So there is scope for retirement, but I just don't think these old-school pensions really are it.
KELLY: Economist Allison Schrager, thank you so much for your time.
SCHRAGER: Thank you. Transcript provided by NPR, Copyright NPR.
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