Business knows that blue collars die younger, so why pay pensions?
sabez at u.washington.edu
Tue May 6 07:09:25 PDT 2003
Actuaryily, it was only a matter of time until this idea got onto the
front page. IT is like social security, which is a tax disproportionately
paid by the poor, who never live long enough to reap the benefits. The
chart points out that for the blues, they have a 25% greater death rate IF
they live to be counted in the 70-71 age interval. It seems the blues
that are better paid (have a larger pension, say from being covered by
union contracts) have almost half the death rate. All from your
friendly neighborhood Actuary. Stephen
NYT May 6, 2003 House Considers Measure to Cut Billions in Pension
Obligations By MARY WILLIAMS WALSH
A bill pending in the House of Representatives would allow businesses with
union workers to reduce their company pension obligations by billions of
dollars, because statistics show that most blue-collar workers do not live
as long as other Americans.
The provision, which has gone largely unnoticed in a broad pension bill,
is being supported by the United Auto Workers and manufacturing companies
whose pension funds now have assets far short of what they are projected
to need under previous assumptions about worker longevity.
The measure would allow companies to assume that their blue-collar workers
will on average die sooner than pension plans now assume they will. So
companies, not having to plan to pay future blue-collar pensions as long
as they now do, would not be required to put aside as much pension money
as government regulations now require them to do.
But the leader of a panel that developed the actuarial data on which the
new provision is based said he had written to the Treasury Department,
which regulates pension funds, to express concern that the data were being
Edwin C. Hustead, chairman of the actuarial panel, said in an interview he
was concerned that the data were being used in an improper way.
White-collar workers are shown by statistics to live longer, he said, but
the bill would not require companies to factor that into their pension
calculations. If it were included, unionized companies with largely
white-collar workers would have to set aside more to fulfill their
promises to retirees in the future.
In addition, Mr. Hustead said workers' pay had been shown to be a more
powerful predictor of life expectancy than whether a worker was blue
collar or white collar, but the bill did not recognize that higher-paid
workers live longer and therefore require longer pension payouts. Many
auto workers and airline pilots are classified as blue collar in the bill,
because they are covered by collective bargaining agreements, even though
they are highly paid.
Aides to the bill's sponsors said they were unaware that the measure had
overlooked these other significant mortality factors. A spokeswoman for
Benjamin L. Cardin, Democrat of Maryland, said the congressman's goal was
to help preserve the system of traditional pensions. A spokesman for Rob
Portman, Republican of Ohio, said the bill was intended to make sure
companies "aren't forced to overpay" into their pension funds.
"The pension system is a voluntary system, and if you force companies to
artificially put more into their plan than is needed, that is a real
disincentive," he said.
The United Auto Workers wrote a letter in support of the provision,
according to people with ties to Congress, apparently in hopes that the
money that companies saved from pensions could be used for higher wages.
The Erisa Industry Committee, which represents large companies, helped
with the bill but was primarily interested in supporting another measure
on the interest rates used in pension calculations, said Janice Gregory, a
vice president of the committee.
With most pension plans now underfunded, Mr. Hustead and some other
actuaries fear that a reduction in contributions could increase the risk
of defaults, at a time when companies are already defaulting on their
pension plans at a greatly accelerated rate.
"I do not agree that the tables should be adjusted for differences between
mortality for blue-collar and white-collar employees," Mr. Hustead wrote
to Treasury, which regulates how companies set aside money to cover
After spending five years collecting and analyzing data for the new
mortality table, Mr. Hustead warned that his panel's findings seemed at
risk of being used in a "curious" and "arbitrary" way. He said in an
interview that he had not received any response from the Treasury.
The issue of worker life spans can be traced to the early 1990's, when
pension plans were also strained, although far less so than today.
Companies at that time were free to select any mortality rate when
calculating their current pension obligations, and some were discovered to
be using unusually high death rates, so as to shrink their pension debt.
In 1994, Congress required all companies with pension plans to use the
same mortality table, or set of probability factors for death rates.
At the time, the table in common use was from 1983. So the Society of
Actuaries, a professional group that engages in research and education,
convened a committee to prepare a new table, based on current demographic
trends. Mr. Hustead, who is also a senior vice president of the Hay Group,
was the chairman.
Normally, actuarial proceedings are quiet affairs that make few waves, but
Mr. Hustead said this one was different. "There were some very strong
opinions, for an actuarial group," he recalled. "We've done mortality
studies in the past, and you go out and do your study, and come back and
say, `Here it is,' and just start using it."
The group decided to create a base mortality table, then test a number of
factors to see what effect they might have on the death rates. One test
was to examine whether the color of one's collar had any effect. The group
defined blue collar as people who were represented by unions or who were
paid by the hour -- a definition that turns such unlikely workers as
unionized athletes, airline pilots, aerospace engineers and even some
newspaper reporters into blue-collar workers.
Separately, the committee tested to see whether pensioners' incomes
affected their mortality rates.
After analyzing 11 million "life years," the committee could see that the
color of the collar and the income level affected life span significantly.
Blue-collar workers and the poorly paid both tended to die young.
White-collar workers and the well-paid tended to live longer.
But even after trying multiple regressions and hiring an outside panel of
academics, the committee was unable to find a statistically valid way of
handling those workers who did not fit the patterns -- those who were
"blue collar," but who also happened to be well paid.
In such cases, Mr. Hustead said, the data showed that money has such power
to lengthen human life that it more than offsets the blue-collar
But not everyone on the committee wanted this point included in the final
report, Mr. Hustead said.
"There were those who wanted to use the higher mortality rates for `blue
collar,' but who did not want to use any lower mortality for `high paid,'
which would be like the auto industry," he said.
In the end, the society published the new table in a report that alluded
to its members' difficulties in the treatment of these adjustments.
Its work completed, the society then passed the table to its sister
organization, the American Academy of Actuaries, which has the
responsibility of representing actuarial interests in Washington.
The academy concluded that what it called the "collar adjustment" was
statistically sound. But it rejected the society's adjustment for income
level, saying current trends make that adjustment suspect.
Mr. Hustead said he was concerned that the same forces that had caused
dissent within his own committee had traveled to the academy. He recalled
that one actuary on his committee, who had forcefully opposed any
adjustment of death rates by income, had also participated in the
"At one time in the middle of this process, I asked him, `Are you working
for one of the auto companies?' " Mr. Hustead recalled. The actuary,
Vincent Amoroso, said he was not.
In an interview, Mr. Amoroso said he had, in fact, represented auto
companies at the time when Congress was requiring that all companies use
the same mortality table. But he said he ended those consulting
relationships before the new mortality table was released in 2000.
"I had not had any connection to the auto companies, in a consulting
capacity, since 1996," said Mr. Amoroso, who is now with the consulting
firm of Towers Perrin.
Mr. Amoroso added that he had volunteered to serve on the Society of
Actuaries' committee because he wanted "to make sure that everybody
"It turned out I was just aghast at the raw, political partisanship of it
all," he said.
He added that he felt that the committee had an established membership and
ingrained habits of mind, and treated him and his ideas as less than
welcome because he was "the new kid on the block."
"Who would have thought there would be such a melodrama in a mortality
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