Boeing Faces Tough Battle in Retirement Negotiations
Boeing Co. (NYSE:BA) employees are actively demanding the reinstatement of traditional pension plans that the company replaced with alternative retirement options a decade ago. This move comes amid concerns that such a change could further strain Boeing's already fragile financial situation.
The aviation giant shifted from defined benefit pension plans, which primarily place the financial liability on the employer, to defined contribution plans, which transfer responsibility to the employees. These defined contribution plans, such as 401(k)s, require funding from both employers and employees and do not guarantee a fixed income during retirement.
Jon Holden, the negotiator for the 33,000 striking Boeing workers, expressed openness to exploring other defined benefit options during a press conference on October 24. However, Boeing remains resistant to reverting to the previous retirement structure, emphasizing the need to control long-term retirement liabilities.
Boeing’s new CEO, Kelly Ortberg, is faced with the challenge of quickly resolving the strike without making unsustainable commitments. The situation evokes memories of recent strikes by the United Auto Workers (UAW) union against major automakers like General Motors (NYSE:GM), Ford (NYSE:F), and Stellantis (NYSE:STLA), where the UAW secured significant increases in employer contributions to 401(k) plans.
Craig Copeland, the director of wealth benefits research at the Employee Benefit Research Institute, noted the UAW's success in obtaining employer contributions without requiring employee contributions.
Over the past thirty years, there has been a significant shift from defined benefit plans to defined contribution plans. According to the Center for Retirement Research at Boston College, by 2022, only 18% of workers were exclusively in defined benefit plans, compared to 62% in 1983.
To manage the increase in retirement-related liabilities, Boeing ended its defined benefit pension plans in 2014, concurrently with an agreement to produce the 777X passenger aircraft in Washington. As the company stated at the beginning of September, restarting the pension plan is currently not an option.
The company’s financial condition during the first three quarters of 2024 has been marked by significant cash losses and the risk of its credit rating being downgraded to "junk" status. According to Copeland, adding defined benefit plan liabilities to the balance sheet could affect the company’s profitability and creditworthiness.
Despite these challenges, labor unions including the UAW and the International Longshoremen's Association have recently sought to negotiate the return of defined benefit plans. John Logan, a labor studies professor at San Francisco State University, mentioned that while these efforts have not yet been successful, there is a high likelihood of them becoming more prominent in future union negotiations.