Modern Day Serfdom

I was running errands last evening listening to that rapidly deteriorating news source NPR and caught a few minutes of a segmant on GM's woes. GM, which announced earlier this week that it will eliminate a quarter of its work force, attributes much of its falling fortunes to the ballooning costs of its pension plans. Much of what I heard, while weaving in and out of traffic, was a sober discussion of the bite pension plans are taking out of the big three. But what my NPR affiliate did not mention -- at least in the time it took me to drive home from my neighborhood Lowe's -- is that the pensions that are bleeding these corporations dry are not those of the unionized, "blue-collar" employees who will be displaced by GM's early retirement and buy-out deal. It's the massive pensions that are going to top tier executives.

As discussed in my most recent entry and in the ensuing comment thread, the United States is degenerating into a system of serfdom; a fact which is not lost on Madman in the Marketplace. His excellent diary on Liberal Street Fighter, "Providing for the Lords," is must reading. Drawing primarily from a Wall Street Journal report on this gauling pension disparity, he brings us to the inevitable conclusion; that working men and women in this country are devolving into a Medieval style peasantry in desperate need of torches and pitchforks.

Here are a few tidbits from Wall Street Journal's fine reporting.

To help explain its deep slump, General Motors Corp. often cites "legacy costs," including pensions for its giant U.S. work force. In its latest annual report, GM wrote: "Our extensive pension and [post-employment] obligations to retirees are a competitive disadvantage for us." Early this year, GM announced it was ending pensions for 42,000 workers.

But there's a twist to the auto maker's pension situation: The pension plans for its rank-and-file U.S. workers are overstuffed with cash, containing about $9 billion more than is needed to meet their obligations for years to come.

Another of GM's pension programs, however, saddles the company with a liability of $1.4 billion. These pensions are for its executives.

This is the pension squeeze companies aren't talking about: Even as many reduce, freeze or eliminate pensions for workers -- complaining of the costs -- their executives are building up ever-bigger pensions, causing the companies' financial obligations for them to balloon.

Thanks to WSJ's reportage we now know that it is the executive salary and pension costs that are tearing through these companies like pathogenic viruses, displacing America's workforce and imperiling the health of the companies themselves -- a fact buried in many corporate financials by lumping executive and low level employee pension figures together. Not only are the pension plans of average employees not a threat to corporate solvency, the earmarked dollars have been providing investment revenue. Just not enough to compensate for the massive bite taken by the pensions promised to chief executives.

When General Motors cites retiree costs, the giant auto maker has a point: It owed nearly 700,000 U.S. workers and retirees pensions that totaled $87.8 billion at the end of last year.

But $95.3 billion had already been set aside to pay those benefits when due.

All of these assets are earning investment returns, which offset the pensions' expense. GM lost $10.6 billion in 2005. But deep as its losses have been, they would have been far worse without the more than $10 billion per year in investment income that the GM pension plan for the rank and file generates.

The pension plan for GM executives is another matter. Unfunded to the tune of $1.4 billion, it detracts from GM's bottom line each year.

Just how much is a mystery, because GM doesn't break out the figure. It said executive pensions are "a very small portion of our overall expense" but declined to give the figure.

There is much more in both Madman's diary and the WSJ piece, including a sobering explanation of how both parties have enabled this disaster, guaranteed to raise the blood pressure. Highly recommended.