On picket lines around the country, auto workers aren’t just demanding higher wages. They want to get back their once-sacred retirement pensions.

While United Auto Workers members who were hired prior to the 2008 financial crisis have pensions, those brought on since have received 401(k) plans instead. The union is demanding the auto companies provide pensions for new employees and those who currently lack them.

“We need to do something, because right now, if you came in after ’07, you don’t have a pension,” said Ryan Ashley, a Ford engine plant worker in Cleveland. “You could retire, and the economy tanks. Whereas at least a pension is guaranteed money.”

Ford Motor Co., General Motors Co. and Stellantis NV are determined to consign pensions to the past even as striking UAW members are just as keen to revive them.  The fight has resonance well beyond the auto industry:  With inflation persisting as the US enters another fraught presidential election cycle, the plight of the middle class — and the financial condition of millions of retirees — is front and center.

Labor experts don’t see a return to a system of full-fledged pensions happening anytime soon, if ever, because of the massive cost associated with them. Even so, demanding pensions is a smart strategy, some say, because it reminds both sides how far behind auto workers have fallen since their heyday.

“The UAW jobs used to be seen as the best jobs and working for the auto company, you’re making big money — buy boats, buy houses, do whatever you want to do,” said Arthur Wheaton, director of Labor Studies at Cornell University’s School of Industrial and Labor Relations who teaches contract negotiations. “If you’re a new hire hired in the last four years, you’re not buying anything, you may be renting and you may be working two jobs. It’s a very different scenario.”

Using pension demands as a bargaining chip could lead to other sweeteners, such as more generous matching contributions to 401(k) funds.

“The UAW might end up settling for something less, but they might say, ‘We’re not giving up on these issues, we’re going to push harder,’” said John Logan, chair of the Labor and Employment Studies department at San Francisco State University.

Up until the 1980s, the most common retirement plans were defined-benefit pensions, under which employees typically get a guaranteed set monthly income in retirement and employers took on the cost and the risk. Nowadays traditional pensions are rare in the US outside of the public sector.

A full-scale shift in almost every industry in the US began in the 1980s, as companies undergoing a wave of restructuring moved from pensions to so-called defined contribution plans, like 401(k)s, where employees decide how much to contribute and companies often match funds up to a set amount. Under this model, the employee assumes most of the cost and all of the risk: There are no guarantees for what an individual’s monthly income will look like in retirement, since that depends on how much money they contribute and how their investments perform.

Now that the major Detroit auto companies are raking in record profits and CEO pay is soaring, striking workers say they deserve to get back the benefits they sacrificed to help the auto companies skirt financial collapse in the 2008 financial crisis.

“The pension part, members who don't have that, they want to be able to retire with dignity,” said Jay Makled, financial secretary of UAW Local 600. For new employees who want to build a career, he said, “it’s top priority.”

This isn’t the first time autoworkers have tried to get pensions back. A return to pensions was among the demands put forth in 2019, but the debate was sidelined and pensions were left out of a final deal following a 40-day strike against GM.  Under current financial accounting standards, the cost of offering a defined benefit plan is prohibitive.

GM’s pension liability could more than double to $129 billion if the automaker were to agree to reinstate a defined benefit pension plan for hourly employees, according to Bloomberg Intelligence analyst Steve Man.

According to people familiar with the companies’ estimates, restoring pensions and granting the UAW’s other original demands — including a more than 40% wage increase, cost-of-living increases, a four-day work week and a boost to retiree benefits — would add more than $80 billion to each of the biggest US automakers’ labor costs. Ford Chief Executive Jim Farley said that proposal, which has since been revised downward slightly by the union, could bankrupt the company.

Perhaps the biggest challenge to bringing back pensions is how they’re baked into financial accounting standards as a cost without any consideration given to the value of human capital, according to Peter Cappelli, director of the Center for Human Resources at the Wharton School of the University of Pennsylvania. Since pensions and other benefits and costs associated with employees, like training, are considered liabilities rather than investments, workers are more often seen as costs to be cut rather than valuable assets. Save any major rewrite of the financial accounting standards and reporting rules, it’s unlikely pensions will be seen as anything other than a huge liability for companies.

Freezing and offloading pensions, for instance offering a lump-sum payout, has allowed companies to jettison what is sometimes their largest expense. When GM froze pensions for salaried workers in 2006, for example, the company reportedly slashed its pension costs that year by $1.6 billion.

“You eliminate those liabilities on your books and suddenly you're much more valuable,” says Cappelli. “The way that game is played, I just can't imagine them wanting to bring it back.”

Still, the UAW’s pension demand, or some version of it, may spread to other unions, reigniting a conversation about a benefit that many thought was long gone, Logan said. From United Parcel Service Inc. to Hollywood, “what you’ve seen in the last year or so, especially,” he said, “is unions are definitely feeling emboldened in many industries right now.”

This article was provided by Bloomberg News.