RENEE MONTAGNE, HOST:
Boeing just extended its contract in Washington, keeping more than 10,000 jobs in state, partly by adjusting employees' pension plans. Last week, we heard on this program how these kinds of deals can cripple the middle class as corporations shift benefit costs from their books into the pockets their workers.
Today, Jacob Kirkegaard of the Peterson Institute for International Economics offers a counterpoint to David Greene, beginning with a breakdown of what that means for workers.
JACOB KIRKEGAARD: There's no doubt that the Boeing deal was a rough one for many Boeing workers. I mean Boeing is not a company that is in immediate financial troubles yet. The company basically told the workers in Washington State that look, either you sign on the dotted line, including significant reductions in your pension and a bunch of other changes, or we move your work elsewhere. And by the way, you're still under contract so you can't strike - sort of gunslinger negotiating style, no doubt about that.
DAVID GREENE, HOST:
I want to ask you about some of the specifics that we were talking about. One of them is a shift from a defined benefit pension to a defined contribution-style retirement plan. Can you briefly just tell me the difference in those two things?
KIRKEGAARD: Basically, the defined benefit plan is characterized by that the benefit that the worker receive is fixed or is guaranteed, so to speak.
GREENE: The traditional pension, you know how much you'll get when you retire.
KIRKEGAARD: You know what you get every month. The defined contribution plan is the opposite. The company guarantees you a certain payout every month while you're working, but then it's up to you to invest that money wisely so that your nest egg grows - which, of course, means that any investment risk is actually shifted from the company to the worker.
GREENE: And why is that? So tell me why a company like Boeing has to make this decision and shift that risk to its workers?
KIRKEGAARD: Basically, the reason for it is the same reasons that pension systems are in trouble everywhere. People live longer. And remember, that if people live five years longer, that's the company having to pay that worker a guaranteed monthly benefit for another five years. This is the so-called longevity risk. And then, of course, many companies used to be much bigger. Now the company has shrunk because of competition, because of innovation, because of shift in technology, etcetera. So it's a much smaller company contributing to a pension plan for a company that used to be much bigger.
GREENE: Let me ask you, you seem to acknowledge what many people are angry about the Boeing plan acknowledge, which is that companies like Boeing are shifting more of the risk and more of the burden to the worker. But you make an argument in your book that people have been far too worried about this than they really need to be. Why is that?
KIRKEGAARD: Well, I think first of all, you know, when people say that, you know, they're taking a chunk of the middle class, they're destroying the American dream - I mean there is a sort of mythical belief that, you know, back in the 1950s or the '60s, everybody had a defined benefit plan. But I think, you know, those times were not quite as rosy as many people think because we have to remember that not everybody had these types of defined benefit plans. You know, you didn't have them outside the unionized industrial sector. Women typically didn't have them, minorities rarely had them. So it was really a certain segment of American society that clearly had these pensions.
GREENE: What is your message to people who look at this and they say, look, these are these wealthy companies who are shifting the burden to workers, it's really hurting the middle class.
KIRKEGAARD: No. I mean I think that this was a victory for Boeing shareholders and a defeat for workers. I would at the same time say that if we believe that somehow it's part of the American dream that you have this type of pension and that you can retire with a defined benefit plan, you know, before you're 60, that dream is probably an illusion, because it's simply unsustainable.
GREENE: Jacob Kierkegaard co-authored a book called "U.S. Pension Reform: Lessons From Other Countries." Jacob, thanks so much for coming in.
KIRKEGAARD: My pleasure.
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