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'It's Pensions, Stupid!'

BANKING ON DEATH Or, Investing in Life: The History and Future of Pensions, By Robin Blackburn, Verso: 550 pp., $30

September 15, 2002|KEVIN PHILLIPS | Kevin Phillips is the author of numerous books, including "Wealth and Democracy: A Political History of the American Rich."

Pension and retirement funds in the United States are running neck and neck with the housing bubble in press speculation about the next financial implosion. Some pensioners with shrunken nest eggs already report threadbare living. Others are simply postponing retirement.

The future of the pension system is turning into a minefield. A number of U.S. corporations, including General Motors, Lockheed and United Airlines, have pension obligations well in excess of their market capitalization. Three dozen companies in the S&P 500 achieved more than 10% of their reported corporate profits for 2001 on estimates of future gains, never realized by the stock, in their corporate pension funds, and now may have to furnish huge makeup sums. The risks are rising for chief financial officers and retirees alike.

One can hardly pick up a newspaper without reading about some company terminating, reshaping or skimming its pension fund. Or, for that matter, about some state or municipal retirement system losing hundreds of millions of dollars from the collapse of Enron and WorldCom stocks and bonds.

Washington is not pushing major new pension safeguards. In part, that's because administration policymakers are still caught up in the 1990s bubble illusion that Social Security should be partly privatized, putting some of its revenues into the eager hands of America's financial services industry. Given their recent record, this no longer makes sense, and some new thinking is in order. Maybe a lot of new thinking.

These facts make "Banking on Death," Robin Blackburn's new book on the history and future of pensions, more timely and important reading than we could have guessed a year ago. No one interested in pension finance or pension rights can afford to miss it, although several chapters, those dealing principally with Britain, need only be skimmed by American readers. The United States subject matter is dominant.

Blackburn wears two hats, one as professor of sociology at the University of Essex in Britain, the second as distinguished professor of history at the New School University in New York. This is a plus because much the same politico-financial games are going on in Britain as in the United States, save that the abuses and issues burgeoned first on that side of the Atlantic. This gives Blackburn something of a leg up on the dicey position of pensions, being what he calls "grey capital" in the homelands of Anglo-Saxon economics.

Grey capital--G-R-E-Y, the British spelling, as in Lady Jane and the tea--is not merely a state of in-between. It is a state of legal uncertainty-cum-vulnerability verging on social peril. In 2000, U.S. pension funds had $7 trillion under management, about a quarter of the value of the overall stock market. The managing and trading of them is a source of huge revenues for the major U.S. investment firms.

Let us get the definitions out of the way. The older variety of pension is "defined benefit": defined because the eventual pension is fixed, based on the salary earned by the employee. In the United States, they accounted for $5 trillion in 2000. The newer variety is called "defined contribution." Its ultimate payout--in a 401(k), for example--varies with contributions, the markets and the investment decision-making of the individual contributor. These plans had about $2 trillion in 2000, but their ranks are growing as corporations try to shed their old-style pension liability.

The combined totals are less now, probably substantially less, thanks to the popped stock market bubble and the attendant fraud, manipulation and deceit epidemic both in corporate America and on Wall Street. The legal problem, however, does not end with the "few bad apples" of presidential rhetoric. It is much more systemic, rising from the whole financial services orchard, its terrain, fertilizer and maintenance.

Here is Blackburn's pithy summary: "The division of responsibility between trustees, money managers and consultants, the power of the sponsor and the limited rights of the policyholders or members all conspire that retirement funds will be 'grey capital.' I use this term because the property rights represented by the funds represents a grey area in terms of law and political economy--that they are also funds held to finance old age is a source of vulnerability to those whose sacrifices have established them."

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