Boeing is in big trouble: now its union wants a pension

“Bethlehem Steel was a giant. You knew if you worked for a place like that, you were… set for life.”
— Wife of a Bethlehem Steel worker

I’ve written for The Motley Fool for a long time, but that line — quoted in one of my first columns, back in 2005 — still haunts me. As I continued in the article:

Bethlehem Steel went bankrupt, and retirees who thought they were “set for life” found themselves out in the cold instead. As Lantz Metz, historian at the National Canal Museum, pointed out, “The human tragedy (of Bethlehem Steel) is not so much the loss of jobs… The human tragedy is the many, many people who were dependent on benefits. which they thought were guaranteed”.

Why am I bringing all this up now? Well, because, as we found out this week, one of the biggest sticking points Boeinghis (BA 2.98%) Labor negotiations with the International Automobile Association is the union’s demand that Boeing reinstate its pension plan. And I think that might be a mistake.

The union wants: more money, less work and a pension plan

By now, the broad outlines of Boeing’s dispute with its auto union are fairly well known. The International Association of Machinery entered this negotiation demanding 40% wage increases over the next three years. Boeing countered with a 25% raise offer over four years. Union leadership recommended its members accept the proposal — but the union voted 95 percent to 5 percent to reject Boeing’s offer.

Then they went on strike.

They remained on strike for three weeks, refusing even to consider Boeing’s “best and final offer” of an immediate 12% raise, followed by a series of three 6% raises over four years (so 30% total).

I don’t know about you, but a 30% raise sounds pretty good to me. IAM negotiators, however, called it “a blatant display of disrespect” and members continued to picket. Now, Boeing is losing more than $100 million a day and risks not becoming profitable in 2025, as it was supposed to.

And now we know why: According to Quartz.com, what the union indeed wants (well, besides a raise and a little extra paid time off) is for Boeing to reinstate the defined benefit pension plan it took in 2014. In exchange for Boeing agreeing to build its 777X jet in Washington, See , the IAM agreed to let Boeing “freeze” its pension plan. That is, anyone with vested benefits would keep them — but new hires would only have a 401(k) retirement plan.

Why would the union agree to this? Well, for one thing, Boeing’s 401(k) benefits were pretty generous — at most, a 10% company contribution plus a 75% employer match from voluntary employee contributions of up to 8% .

By my calculations, that’s up to 16% of free money on top of salary. Beautiful!

Boeing sweetens the pot

However, the terms offered by Boeing waived over time. At last report, IAM workers were getting just 4% automatic 401(k) contributions plus 75% matching — so a maximum of 10% total.

Plus, not everyone likes having to manage a 401(k). Some employees prefer the simplicity and security of an old company pension. So while Boeing’s latest offer includes a 100% company match (raising the potential maximum to 12%), it’s understandable that IAM wants its defined benefit pension system back.

Given how much money Boeing is losing and the incredible pressure it’s under to end this strike quickly, IAM might just get it.

What could this mean for Boeing?

401(k) vs. Retirement: Which would you choose?

There are reasons why corporate America has moved away from providing pensions over the past 20 years. They do not like to be responsible for the performance of the pension fund, for example, and would prefer to shift the responsibility for retirement to the employees. The cost of recouping pension fund contributions to replace investment losses in “down” years for the stock market can also make earnings reports look nebulous.

And workers don’t stay as long as they once did. The Bureau of Labor Statistics says your average worker today has been on the job less than four years, the shortest stay in two decades. With employees switching so often (potentially because companies no longer offer pensions to keep them around), a portable 401(k) may simply make more sense than a pension that kicks in after five years .

This is something the IAM itself might want to consider — the relative utility of a 401(k) versus a traditional pension and the risks that would come with a switch back to pensions.

They might even ask Bethlehem Steel workers about it. And after that conversation, they might decide to trade their pension demand for bigger pay raises and an even better 401(k).