Since last month’s strike, Boeing factory workers have repeated one theme from their picket lines: They want their pensions back.
Boeing froze its traditional pension plan as part of the concessions union members narrowly voted for a decade ago in exchange for keeping production of the company’s planes in the Seattle area.
Like other major employers, the aerospace giant argued at the time that rising pension benefits threatened Boeing’s long-term financial stability. But the decision has nevertheless been reversed and has tax consequences for the company.
The International Association of Machinists and Aerospace Workers announced Wednesday evening that 64% of its Boeing members voted to reject the company’s latest contract offer, which included a 35% pay increase over four years. Crucially, the company did not propose to reinstate pensions for its 33,000 drivers.
The extension of the six-week strike puts Boeing – which is already deeply in debt and lost another $6.2 billion in the third quarter – in even more financial danger. The strike has halted production of the company’s 737, 767 and 777 jetliners, cutting off a key source of cash that Boeing receives when new planes are delivered to airline customers.
However, the company indicated on Thursday that reducing pensions remains a non-starter in future negotiations. Union members are just as adamant.
“I feel sorry for the young people,” Charles Fromong, a tool repair technician who worked at Boeing for 38 years, said after the vote in a Seattke union hall. “I’ve spent my whole life here and I’m preparing to leave, but they deserve a pension, and I deserve a raise.”
What are traditional pensions?
Pensions are arrangements in which retirees receive a fixed amount of money every month for the rest of their lives. Payments are generally based on an employee’s years of service and previous salary.
However, in recent decades, traditional pensions have been replaced in most workplaces by retirement savings accounts such as 401(k) plans. Instead of a guaranteed monthly income stream after retirement, employees invest money that they and the company contribute.
In theory, investments such as stocks and bonds will increase in value over employees’ careers and provide them with sufficient savings for retirement. However, the value of the accounts may vary depending on the performance of the financial markets and the investment decisions of each employee.
Why did employers move away from pensions?
In the 1980s, about 4 in 10 U.S. private sector workers had a pension plan, but today only 1 in 10 do, and they are overwhelmingly concentrated in the financial sector rather than manufacturing, according to Jake Rosenfeld, chair of the sociology department. at Washington University-St. Louis.
Companies realized that if they had to guarantee a certain percentage of employees’ salaries after retirement, that was much riskier and more difficult to manage than defined contribution plans, Rosenfeld said.
“Defined contribution plans shift pension risk to the employee and retiree, away from the company,” he added. “And so that became the main trend with company after company after company.”
Given the decades-long shift, Rosenfeld said he was surprised that the issue “has remained a sticking point on the grassroots side” at Boeing. ‘These types of plans have been in decline for decades. And you simply don’t hear of a company recreating a defined contribution scheme or implementing it from scratch.”
What happened to Boeing’s pension plan?
In early 2014, Boeing demanded that machinists drop their pension plans as part of an agreement to build a new model of the 777 jetliner in Washington state. Union leaders were terrified at the prospect of Boeing building the plane elsewhere, with non-union labor, as it did with the 787 Dreamliners, which are assembled in South Carolina.
After a bitter campaign, the agreement with Boeing was approved in January 2014 by a narrow majority of 51% of train drivers. Boeing contributed 10% of employee wages to retirement accounts for two years, 6% in the third year and 4% thereafter. It also matched employee contributions to some extent.
Two months later, the company also froze the pensions of 68,000 non-union employees, including managers. Boeing’s top human resources chief said at the time that the point was for Boeing to “ensure our competitiveness by curbing the unsustainable growth of our long-term pension obligations.”
How realistic is the demand from Boeing employees?
In recent weeks, Boeing has twice increased its pay raise offer, but the company has steadfastly opposed the return of pensions.
“There is no scenario in which the company reactivates a defined benefit pension for this or any other population,” the company said in a statement Thursday. “They are unaffordable, which is why virtually all private employers have moved to defined contribution plans.”
Boeing says 42% of its machinists have been with the company long enough to be covered by the pension plan, even though their benefits have been frozen for years. In the contract rejected Wednesday, the company proposed increasing monthly payouts for covered employees from $95 to $105 per year of service.
The company said in a securities filing that accrued pension liabilities as of September 30 were $6.1 billion.
Jon Holden, the president of IAM District 751, which represents striking workers, said after the vote that if Boeing is unwilling to reinstate the pension plan, “we need to get something to replace it.”
Do companies ever restore pension plans?
It is unusual for a company to restore a pension plan after it has been frozen, although some companies have done so. IBM replaced its 401(k) match with a contribution to a defined benefit plan earlier this year.
Pension plans have become a rarity in corporate America, so the move could help IBM attract talent, experts say. But the reason IBM chose to reinstate its pension plan may be more financial. After the pension plan was frozen about 20 years ago, IBM’s pension plan became significantly overfunded, according to Milliman, an actuarial firm.
One of the reasons companies are considering this is that for some, their pension plans are in better shape. In a 2024 study, Milliman analyzed 100 of the largest group pension plans in the U.S. and found that 48 of the plans were fully funded or better, and 36 were frozen plans with excess assets, thanks to investment returns and favorable interest rates.
Can Boeing be pressured to change its mind?
Pressure to end the strike is growing on new CEO Kelly Ortberg. Since the strike began on September 13, he has announced about 17,000 layoffs and steps to raise more money from selling shares or debt to shore up the company’s finances.
Bank of America analysts estimate that Boeing is losing about $50 million a day during the strike. If it lasts 58 days – the average of the last few attacks on Boeing – the cost could be almost $3 billion.
“We see more benefits if (Boeing) further improves the deal and reaches a faster resolution,” the analysts said. “In the long term, we see the benefits of making a generous offer and dealing with increased labor inputs that outweigh the financial pressures caused by prolonged disruptions.”
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Manuel Valdes in Seattle contributed to this report. Koenig reported from Dallas and Bussewitz from New York.
