Who Stole the American Dream? (14 page)

So pervasive did this burden shift become that by the mid-2000s, only 18 percent of workers—one-quarter of the percentage in 1980—were getting full health benefits paid by their employers. Another 37 percent got partial help but had to pick up a large part of the tab themselves. The rest (45 percent) got no employer support. Some companies may have needed this change to survive, but many simply added the cost savings to their profit line.

Wal-Mart, the nation’s largest employer,
four of whose owners rank among America’s eleven richest individuals, decided in October 2011
to roll back health care coverage for its large part-time workforce and to sharply raise health premiums for many full-time staffers. In the early 2000s, Wal-Mart had touted the news that 90 percent of its employees had health coverage, though it neglected to reveal that at least half got coverage from other employers through their spouses. “
The truth is more like 38, 39 percent” were covered by Wal-Mart, said Jon Lehman, a former manager of six different Wal-Mart stores. Very often, Lehman told me, he personally had to counsel and even drive Wal-Mart employees to nonprofit charities and organizations that provided indigent care because they had no Wal-Mart health coverage.

Wal-Mart’s policies generated so much public controversy that in 2007, Wal-Mart took a more generous approach—picking up a larger share of the health premiums for its full-time employees and offering coverage for part-timers after a year of employment. In 2008,
Wal-Mart reported that for the first time in its forty-six-year history, it was covering 50.2 percent of its employees.

But in 2011, Wal-Mart’s management decided to back off the new benefits package. The company’s decision to deny health coverage to new part-time employees, according to Wal-Mart spokesman
Gene Rossiter, was driven by rising health care premiums. “Over the last few years, we’ve all seen our health care rates increase,” Rossiter explained. “The decisions made were not easy, but they strike a balance between managing costs and providing quality care and coverage.” In reaction, some Wal-Mart employees said they could not afford the higher health premiums, and Dan Schlademan, director of Making Change at Wal-Mart, a union-backed campaign, protested that Wal-Mart’s move was “
another example of corporations putting profits ahead of what’s good for everyday Americans.”

In the same tough economic climate,
Costco, a big-box retail rival of Wal-Mart, took the opposite tack. Costco has maintained health coverage for roughly 85 percent of its employees, while keeping wages steady and avoiding large layoffs. “
We try to provide a very comprehensive health-care plan for our employees. Costs keep escalating, but we think that’s an obligation on our part,” explained Costco CEO Jim Sinegal. “We’re trying to build a company that’s going to be here 50 and 60 years from now. We owe that to the communities where we do business. We owe that to our employees, that they can count on us for security. We have 140,000 employees and their families … who count on us.”

Costco is known for a high retention rate among its employees, while Wal-Mart has a reputation for high employee turnover. At Wal-Mart, CEO pay packages have run as high as $20 million in recent years, whereas Costco’s
Sinegal consistently took a pay package of about $2.2 million. As
The Wall Street Journal
put it, Sinegal chose being kind to his own workers over making Wall Street happy. In recent years, Morningstar, the investment rating service, reports that
Costco has outperformed Wal-Mart and other retailers. Even so, the trend in business has moved away from the Costco model.

In terms of the overall financial burden shift from corporations to employees, by far the largest change has come in retirement benefits.
In 1980, 84 percent of the workers in companies with more than one hundred employees were in lifetime pension plans financed by their employers. By 2006, that number had plummeted—only 33 percent had company-financed pensions. The rest either got nothing or had been switched into funding their own 401(k) plans with a modest employer match.

The switch offered big savings for employers. According to longtime pension expert Brooks Hamilton, the lifetime pension system cost companies from 6 to 7 percent of their total payroll, but they spent only 2 to 3 percent on matching contributions for 401(k) plans. Often those savings went directly into corporate profits and bigger stock options bonuses for the CEO and other top executives.

The explanation from corporate chiefs and financial officers echoed Wal-Mart. Businesses said they could no longer afford lifetime pensions. As Jeffrey Immelt, CEO of General Electric, told his stockholders: “
[The] pension has been a drag for a decade.”

But digging into the records,
Wall Street Journal
reporter Ellen Schultz found that wasn’t really true. In fact,
pension plans were moneymakers for many a big company. In the bull market of the 1990s, America’s blue ribbon companies did so well investing their employee pension funds that many built up huge surpluses, above their obligations to employees, without contributing a cent of company cash for a decade or more. The stock market gains were so large that by November 1999, GE had a $25 billion surplus in its basic employee pension funds; Verizon had $24 billion; AT&T had $20 billion; IBM had $7 billion.

What’s more, some of America’s largest corporations were able to shift pension fund gains indirectly to their profit lines and, Schultz reported, a few legally took advantage of loose and poorly enforced accounting rules to siphon off money from their employee pension funds to finance portions of their corporate downsizing, restructuring, and mergers and acquisitions.

“
Many, like Verizon, used the assets to finance downsizings, offering departing employees additional pension payouts in lieu of severance,” Schultz disclosed. “Others, like GE, sold pension surpluses in
restructuring deals, indirectly converting pension assets into cash.” Some companies made billions by shutting down employee pension plans and shifting surplus assets to company profits. And if company pension plans got into financial trouble during the stock market decline in the early 2000s, it was either because the company itself was in deep financial trouble or because company finance officers had been too aggressive in gambling with pension assets, putting them into risky equities in hopes of making big gains, rather than investing carefully in safer, more conservative assets like bonds.

Either way, the shift out of lifetime pensions to 401(k) plans and so-called account balance plans by highly profitable corporations was a heavy cost blow to employees from assembly line workers at Ford and GE to software and Internet specialists at IBM.

In the 1950s, U.S. employees nationwide paid collectively about 11 percent of their retirement costs. By the mid-2000s, they were paying 51 percent. Hundreds of billions of dollars in safety net costs were shifted from companies to employees without any offsetting real increase in the typical worker’s pay. For ordinary Americans, the consequences were acute.

“
This fundamental transformation, which I call the ‘Great Risk Shift,’ ” says Yale political economist Jacob Hacker, “… is at the root of Americans’ rising anxiety about their economic standing and future.”

Some major political leaders and economic analysts have defended the burden shift from government or employer safety net programs to individuals as a positive development. They have argued that both corporate welfare and government welfare were misguided policies that fostered economic dependency instead of promoting personal self-reliance and individual responsibility. In the White House, George W. Bush called this philosophy “the ownership society,” and he pushed hard to make it policy. What Bush meant by an “ownership
society” was that individuals should take ownership, or total financial responsibility, for their own economic destinies and not expect employers or the federal government to provide a safety net.

The “ownership” concept lay behind Bush’s abortive effort to privatize the Social Security system in 2005 after his reelection. Bush barnstormed the country pushing the plan. His goal was to get government off the hook for guaranteeing lifetime retirement payments for people on Social Security. Instead he wanted people to invest their Social Security contributions in the stock market and finance their own retirement.

That same general concept lay behind the plan that Republican Paul Ryan, as House Budget Committee chairman, proposed for Medicare in 2011. Ryan’s plan was to give individual Americans a stipend from Medicare and have them buy their own health insurance. That would relieve government of responsibility for unlimited health care costs. In both the Bush and Ryan plans, the financial risks over the long run would have been put increasingly on ordinary Americans. Individuals would have been at far higher financial risk than at present. Once enough voters understood what was afoot, they objected vociferously to the changes in their safety net. Both Bush and Ryan had to back off.

But Corporate America was so successful in shifting a major portion of the cost for health and pension benefits onto individual employees that even a corporate financial giant like Metropolitan Life Insurance Company was moved to comment in 2007 that this shift had essentially turned the old social contract upside down. As MetLife put it, “
The burden shift has turned the traditional definition of the American Dream ‘on its ear.’ ”

In nationwide surveys, MetLife reported, it found that the burden shift from employers to employees was “
having an impact, with potentially profound implications” on the living standards and finances
of middle-class families. In its 2007 “MetLife Study of the American Dream,” the firm found that by more than a 3 to 1 margin (65 to 19 percent), Americans believed things had gotten less secure in the last decade, even though the economy had enjoyed a growth spurt in the mid-2000s. When MetLife asked people whether they were living the American Dream of home ownership and a solid economic life,
two-thirds said they had not achieved the dream. Roughly half of those over forty said they never expected to achieve it. That was
before
the economic collapse of 2008.

Two years later, as the recession hit bottom in 2009, MetLife did another poll. Once again, only one-third of Americans thought they were living the dream. But this time, half of that group, especially people in their midfifties and older, were worried that the dream was going to slip through their fingers and that they would be unable to sustain the good life in the years ahead.

Perhaps the starkest indicator of mounting middle-class distress has been the sharp rise in personal bankruptcies, now an integral feature of the New Economy. Bankruptcy is a middle-class phenomenon. The poor go broke, but they don’t file for bankruptcy, financial experts say, because they have few, if any, assets to protect. Middle-class people and upper-middle-class professionals go into bankruptcy to try to hang on to basic assets such as their home, their retirement nest egg, or their income stream, all of which are protected by law if they file for bankruptcy.

Personal bankruptcies soared in the 1990s. By 2005, there were more than two million personal bankruptcies—roughly seven times as many as two decades earlier, in 1984. “
Bankruptcy has become deeply entrenched in American life,” Harvard Law School professor Elizabeth Warren wrote in 2003. “This year, more people will end up bankrupt than will suffer a heart attack. More adults will file for bankruptcy than will be diagnosed with cancer. More people will file
for bankruptcy than will graduate from college…. Americans will file more petitions for bankruptcy than for divorce.”

Bankruptcy can happen to almost anyone, even middle-class people who have been riding along comfortably. Some families teeter on the brink for years, but typically when solid families go bankrupt, the cause is almost always some acute and unexpected economic calamity—the loss of a job; a medical catastrophe; divorce; foreclosure or drastic loss of home value; or the slow, relentless ebb tide of poverty in retirement.

Millions of middle-class
families go over the financial cliff, pushed inexorably into bankruptcy by ever-mounting debt. In fact, private debt in America has risen far more rapidly than government debt. The total personal debt of American consumers exploded from several hundred billion dollars in 1959 to $12.4 trillion in 2011, according to Federal Reserve statistics.

Pam Scholl, the unemployed former RCA worker, filed for bankruptcy in September 2010. Scholl had been jobless since May 2009, except for a temporary three-month stint as a census taker in 2010. Her unemployment checks were not enough to cover her mortgage, car payments, health care, taxes, food, clothing, and living expenses, so she borrowed on credit cards. Very quickly, she fell into a downward spiral. By the end, she was making $500 a month in minimum payments to her credit card accounts, on top of her living expenses. Her debt climbed—to $50,000.

“
I was pretty much borrowing from one credit card to pay for the others,” Scholl told me. “I figured that once I got a job, I could pay them off. But I never could catch up. As soon as I realized that I was over my head, I went to the bankruptcy lawyer. You feel horrible. You know you’ve ruined your credit. I’ve had excellent credit since I was seventeen years old. But there was nothing I could do. There was nobody I could borrow from.”

Her bankruptcy filing was not contested by any credit card company, and in February 2011, the court approved it. “That ended my credit card debt,” Scholl said. “It protected my house so I could live. It protected my retirement fund and my 401(k). To keep my car, I had to take $4,000 from my retirement savings to pay off the car loan.”

Just after Thanksgiving 2010, Scholl got a job with the Ross County Auditor’s Office at $8.50 an hour, but after tax withholding, that job actually paid her less than unemployment insurance had paid. For a year she limped along, borrowing from her savings to pay her bills. Then, a year later, in December 2011, she got a chance to work as a payroll clerk in the Ross County Sheriff’s Office, making $12.25 an hour. The pay was about half as much as her RCA salary. But, said Scholl, “I am thrilled—$12.25 an hour seems like heaven to me. I’ve been without work for so long, I really appreciate having that. And I feel very fortunate to have health insurance again because I am a diabetic.”