UAW’s Big 3 Retirement Deals Fall Short of Pension Revival (1)

The United Auto Workers had an overarching goal last summer as it headed into negotiations with Detroit’s Big Three: claw back as many concessions as possible from the Great Recession, then keep pushing for an even better deal.

In many ways it succeeded, with retirement being a notable exception. While the union won big improvements for savings plans, its long-shot endeavor to bring back pensions for younger members went nowhere, even as it won historic gains in pay and the elimination of wage tiers.

The failure leaves intact a schism between auto workers hired before the fall of 2007, who get defined-benefit pensions, and those hired later who only receive savings plans with contributions from Ford Motor Co., General Motors Co., and Stellantis NV.

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It shows how even the national surge in union activism, fueled by a good economy and tight labor market, was unable to restore all the core economic securities that previous generations enjoyed.

Employers these days are almost uniformly against pensions, an invention of the post-war economy that became synonymous with financial turmoil as declining manufacturing industries became unable to pay their retirees. The volume of faltering pension plans got so large it nearly felled the federal insurer before Congress intervened in 2021.

“In a lot of corporate America, when you say ‘pensions,’ people imagine the 1950s,” said Dan Doonan, executive director of the National Institute on Retirement Security. “They imagine this old business model; it’s out of date, it’s no longer used. When you look at how you manage a pension today versus back then, I mean, people were using paper and pencils to value these benefits to fund the plans.”

United Auto Workers members on a picket line outside the Ford Motor Co. Michigan Assembly plant in Wayne, Mich., on Sept. 15, 2023.

Photographer: Emily Elconin/Bloomberg

Some Retirement Gains

Pensions fell out of favor as employers shifted responsibility for retirement savings to workers. To be sure, the UAW was still able to make gains, focusing on raising Ford’s match rate for 401(k)s, market-based savings accounts typically fed by contributions from both the employer and employee.

The union persuaded Ford to raise its contribution to 10% of an employee’s salary—three to four times what most employers offer—up from 6.4% in the current contract. That contribution rate was mirrored in the Stellantis deal, a company spokeswoman said.

It also bargained an option for Ford employees to convert 401(k)s to annuities, contracts with insurance companies that guarantee regular fixed payments during retirement, not unlike pensions.

Kevin Dobis, a 29-year Ford employee, said he had hoped pensions would return for all employees after seeing automakers’ move back toward that model with the Canadian union Unifor. But the 401(k) gains are still impressive, he said.

“Raising the 401(k) to 10% seems like a good compromise at this point, but hopefully in the next contract we can get some sort of defined benefit,” said Dobis, who works at the assembly plant in Wayne, Mich.

Deals with Stellantis and GM are expected to broadly mirror the Ford agreement, though details hadn’t been released as of Wednesday night.

The union didn’t entirely ignore pensions, however, negotiating better rates for workers who started before the 2007 cutoff.

“Those workers are still working—they’re voters,” said retired UAW official James Coakley, referring to the upcoming ratification vote on the contracts. “So if the union wants their vote, they better give them something.”

Ford didn’t respond to requests for comment. GM and the UAW declined to comment, while the Stellantis spokeswoman declined to elaborate on other aspects of the deal.

Union President Shawn Fain is scheduled to host a virtual briefing Thursday evening to reveal details of the Stellantis agreement.

Pension Restoration Elusive

Since the tentative agreement between the UAW and Ford last week, Doonan of the retirement security institute has been calling for a pension “renaissance,” restoring guaranteed lifetime income options for trade workers and protecting companies from the effects of labor shortages.

Pensions give workers a financial incentive to stay with the same employer longer in order to maximize their vested benefits; public-sector employers have relied on that workforce model for years, he said.

The union’s interest in restoring pensions dates back to its willingness to give them up as the automakers teetered on the brink of collapse. UAW officials at the time saw many of the cuts as temporary, to be restored once the companies found their footing.

More than a decade later, the union found itself striking over those same issues.

“In order to get people to rethink the conventional wisdom, we really need to see companies say, ‘You know, this actually might make sense for us,’ as opposed to companies being forced into it or giving in to union demands,” Doonan said.

Even before the recession, the three automakers negotiated freezes on their pension plans. Free medical coverage for former Ford, GM, and Stellantis workers were parsed into three separate voluntary employees’ beneficiary associations that pay out limited benefits from a trust.

Unions learned from this fight that their interests could be better served by restructuring defined-contribution plans such as 401(k)s rather than fighting for pensions, said Marick Masters, a Wayne State University professor who studies auto unions.

“It’s unlikely that the landscape will change in terms of companies overwhelmingly embracing defined-contribution plans versus defined-benefit plans,” Masters said. “The demographics don’t allow for that anymore. You have too many retirees and too few active workers.”

“Unions are going to be looking at ways to supplement defined-contribution plans, to make them better,” he added.