(Bloomberg View) — Buried in the $1.1 trillion spending bill that President Barack Obama signed into law last night is a provision that would allow the benefits of retired truckers, construction workers and others who contributed to so-called multiemployer pensions to be cut for the first time.
This change — potentially affecting as many as 1.5 million current and future retirees in underfunded plans, mostly union workers — will undoubtedly set off volleys of finger-pointing to find a culprit for the accelerating collapse of the system. Many commentators will blame unions for extorting extravagant, unsustainable retirement packages from employers that are now falling apart.
But it's not so simple. In fact, the long, tangled history of U.S. private pensions is equally a story of how business sought to manage labor, conserve profits and block the expansion of a modern welfare state.
Research by historians such as Jennifer Klein and Steven Sass helps explain why the U.S. is almost unique in its reliance on private, company-sponsored pensions instead of comprehensive, government-sponsored benefits.
Private pensions emerged in the late 19th century in what was then the most important U.S. industry: railroads. In 1877, striking railroad workers protesting wage cuts brought the country to a standstill. Workers clashed with state militias; dozens died in the ensuing violence.
Although the strike was suppressed, the railroad barons sought ways to avoid further outbreaks of violence and labor unrest. And in 1880, the Baltimore and Ohio Railroad instituted a private pension plan for its employees; it eventually would cover 77,000 workers.
This wasn't a matter of altruism. As Dr. W.T. Barnard, who designed the B&O program explained at the time, the failure of management to provide benefits had driven workers into the arms of "agencies most potent in fermenting discontent — secret societies, brotherhoods, and similar organizations," most obviously unions.
Labor unions were perceived to be dangerous to employers because they steered the allegiance of workers away from their workplace. The B&O plan, which offered a variety of benefits, was the first comprehensive attempt to compete for the loyalty of employees by providing pensions.
Other railroads and corporations also began to offer similar programs of "welfare capitalism." Some, like the Pennsylvania Railroad, which came up with a comprehensive plan in 1900, realized that pensionsalso enabled them to push older, less efficient workers into retirement with minimal fuss, helping the company's bottom line.
In the succeeding decades, corporations in other industries followed suit. Invoking the spirit of welfare capitalism, they unilaterally introduced pensions, health and disability insurance, and other perks in an overt attempt to woo workers away from unions. The programs became so widespread that in the 1920s, many unions protested against such benefits, which they said circumvented the collective bargaining process.
But corporations found further reasons for delivering pension benefits. Starting in 1926, contributions to company pensions became tax-deductible. The rise in corporate tax rates in the 1930s gave another impetus to the creation of private pensions.
