Lockheed union workers buck leadership, reject strike

By  | 

Union members at Lockheed’s Marietta, GA plant chose not to strike over a benefits dispute in the new contract offered by the company. The plan keeps the existing pension for Lockheed’s workers and puts new employees on a 401(k)-style plan. The last-minute inclusion of some cash benefits and a Blue Cross/Blue Sheild-style HMO, covered by the company at 85 percent, sealed the deal, according to the Atlanta Journal-Constitution:

On a 1,366 to 1,006 vote members of the Local 709 of the International Association of Machinists decided to stay on the job.


Roughly 3,000 union members would have stopped working early Monday morning if it had decided to reject Lockheed Martin’s three-year deal. The current deal expired today.

The union leadership contended Lockheed wanted to take pensions from future employees and saddle all employees with what it considers an inferior health insurance plan.

“Retirement benefits like pensions and retiree medial coverage are some of the highest costs that many companies face today in attempting to remain competitive.”

While not a landslide, a victory margin of 14% is decisive by any standard.

Lockheed, like many companies that began operation before the 1970s and 1980s, has a pension plan for its unionized workforce wherein the company contributes to a fund that is later disbursed to those employees after they retire. Pensions are expensive to maintain and contributions by the company are usually very high compared to other retirement plans. Retirement benefits like pensions and retiree medical coverage are some of the highest costs that many companies face today in attempting to remain competitive.

Most companies founded since the 1970s (and many others) long ago chose the market-based 401(k) retirement plan, where the employee contributes some portion of their paycheck and the company “matches” some portion of that contribution. Common “matching” rates are 4% full match (where the company matches, in full, any contribution up to 4% of the employee’s income) and 6% half match (where the company matches half the contribution up to 6% of income). Many companies require that an employee stay with the company a certain length of time before “vesting”; in other words, they offer only a portion of the company’s contribution until the employee has been with the company for usually three to six years. While this matching system can sometimes be inconvenient for the employees, it significantly reduces the burden on the company and allows the employee to individualize their retirement.

“…there is a perception that the benefits of a 401(k) are less than a pension. Depending on the position of the stock market when the employee retires, that may or may not actually be true. Despite this, pensions are more risky than 401(k)s.”

Unions hate this. First, other than the matching rate, retirement benefits stop being a point of contention: Either the employee contributes to their retirement or they don’t, and it’s their choice how much they contribute. Second, workers can individualize their retirement savings, increasing or decreasing their contribution to achieve differing retirement goals. Further, there is a perception that the benefits of a 401(k) are less than a pension. Depending on the position of the stock market when the employee retires, how much they contribute to their retirement account and when they started saving that may or may not actually be true. Despite this, pensions are more risky than 401(k)s.

Investing a 401(k) in about six mutual funds protects an employee from much of the volitility of the stock market and the possibility of companies going bankrupt. While mutual funds will rise and fall with the market, the diversification protects them from the failure of any individual company and the 401(k) account is protected from their own company if it fails. Even if a fund fails entirely, the other five funds bouy the account, minimizing losses.

The same cannot be said of a pension. If the employer hasn’t fully funded the pension and declares bankruptcy, the employee’s unfunded pension benefit disappears. Some companies don’t have or didn’t fund a pension fund at all, so they pay the pension out of current cash. If such a company fails or falls into a cash crunch, there is no pension. There is a Federal Pension Guarantee Corporation (similar to the FDIC but for pensions), but that will only cover a percentage of the defined benefit. Contrast this with a 401(k), where the employer match is maintained because that contribution must be made on a timely basis and the employee’s personal account is their own, protected from corporate bankruptcy.

Companies can suspend their 401(k) matching contributions (I personally have worked for two companies that have done this at one point or another). However, my personal contributions to my retirement continued. My risk on such a plan is actually very low. If I were on a pension plan and my company stopped funding it due to a cash shortage, my risk has increased considerably. I have no guarantees that the pension contributions will resume, and if my company is not contributing to the pension fund then it is probably in very serious trouble, with a high risk of bankruptcy.

The pension is an anachronism; it’s a thing of the past. The companies that still have them are like Dodo Birds after Europeans introduced pigs and other animals to their native Mauritius. Just as the Dodos couldn’t compete with pigs, pension-saddled companies find it more difficult to compete with the new crop of companies that aren’t dealing with pension responsibilities.

By giving up a small portion of their income, workers on a 401(k) plan increase their retirement security and individualize their retirement to fit their needs. Workers whose union fights for a defined pension plan give up retirement security in exchange for keeping a small portion of their current income and the pitiful and unsustainable promise of a bigger check at retirement. The risk-reward ratio, once the “Gold Standard”, just doesn’t add up anymore.

Cross-posted at Redstate.

Enhanced by Zemanta


  1. mbecker908

    Mar 7, 2011 at 2:03 am

    It seems like an awfully slow process but I think the unions will get the picture. And they'll get the picture for one simple reason. If they don't get the picture, they get the axe.

  2. Stix1972

    Mar 7, 2011 at 2:41 am