Boeing's 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 been writing for The Motley Fool for a long time, but that line -- quoted in one of my very first columns, way 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, a historian with 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 do I bring all of this up now? Well, because as we learned this week, one of the biggest sticking points in Boeing's (NYSE: BA) labor negotiations with the International Association of Machinists is the union's demand that Boeing revive its pension plan. And I think that might be a mistake.

Union demands: More money, less work, and a pension plan

By now, the broad outlines of Boeing's dispute with its machinists' labor union are pretty well known. The International Association of Machinists went into this negotiation asking for 40% wage hikes over the next three years. Boeing countered with an offer of a 25% raise spread over four years. The union leadership recommended its members accept the proposal -- but the union voted 95% to 5% to reject Boeing's offer.

Then they went on strike.

They've remained on strike for three weeks now, 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 nice to me. IAM negotiators, however, called it "a blatant show of disrespect" and the members continued to picket. Now Boeing is losing more than $100 million a day and risks not turning profitable in 2025 as it was supposed to.

And now we know why: According to Quartz.com, what the union really wants (well, in addition to the pay raise, and a bit of extra paid time off) is for Boeing to reinstate the defined benefit pension plan that it took away in 2014. In exchange for Boeing agreeing to build its 777X airplane in Washington, you see, IAM agreed to let Boeing "freeze" its pension plan. Which is to say, anyone who had vested benefits would keep them -- but new employees would have only a 401(k) retirement plan.

Why would the union have agreed to this? Well, for one thing, the 401(k) benefits Boeing offered were pretty generous -- at most, a 10% company contribution plus a 75% employer match on employees' voluntary contributions up to 8%.

By my math, that adds up to 16% worth of free money on top of salary. Nice!

Boeing sweetens the pot

The terms Boeing offered did step down over time, however. At last report, IAM workers were getting only 4% automatic 401(k) contributions plus the 75% match -- 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-school company pension. So while Boeing's latest offer includes a 100% company match (boosting 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, the IAM might even get it.

What could that mean for Boeing?

401(k) versus pension: Which would you choose?

There are reasons American companies moved away from offering pensions over the last 20 years. They don't like being responsible for retirement fund performance, for example, and would rather shift retirement responsibility to employees. The cost of catch-up pension fund contributions to replace investment losses in "down" years for the stock market can also make earnings reports look lumpy.

And workers don't stick around 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 job-hopping so frequently (potentially because companies no longer offer pensions to keep them around), a portable 401(k) retirement plan may simply make more sense than a pension that vests after five years.

That's something the IAM itself might want to consider -- the relative usefulness of a 401(k) versus a traditional pension, and the risks that would come with a shift back to pensions.

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

Should you invest $1,000 in Boeing right now?

Before you buy stock in Boeing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Boeing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $765,523!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 30, 2024

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.