Re: United ESOP highlights a problem

[Dan Bell <dbell@kent.edu>]

Norm,

I agree that employees should have direct control of the companies
they own through ESOPs.

Regarding defined benefit plans, the OEOC never recommends to an
employee group that they exchange a good defined benefit plan for
an ESOP. We do not see ESOPs as good core retirement plans, we see
them first as good financial mechanisms for employees to use in
acquiring their company, and second, as good supplemental retirement
plans.

Of course, where saving the company requires freezing the defined
benefit plan during the life of the ESOP loan, sometimes workers have
no other choice, assuming they have a good shot at keeping decent
paying jobs through the sacrifice. We recommend that they reinstitute
a more diversified retirement vehicle once the debt service has been
met.

The fact that one worker supports 7 retirees in the steel industry
is not a condemnation of defined benefit plans, it is a condemnation
of the greed of the owners of the steel industry.

When the steel company owners promised the defined benefits, they
had a moral obligation to set aside enough of their profits to
support this contractual obligation. Many owners greedily milked the
profits for their own consumption.

A case in point is Atlantic Foundry in Akron, Ohio, owned by the Reymann
family. When they discovered in the 1980s that the foundry business
alone did not generate enough profits to pay the obligation to the
retirees, they formed another corporation Citnalta (Atlantic spelled
backwards) and transfered the retained earnings to the other corporation.
Of course, they left the obligation to the retirees to the foundry
company. The capital which through investments would generate more than
enough money to meet the retiree obligation was stolen by the Reymanns.

Then they closed Atlantic Foundry because it "could not afford to support
the retirees".

Around 1989/1990, accounting rules were changed to require that the
future value of retiree health obligations were reflected as a
liability on the Balance Sheet. Obviously, this shifted value from
retained earnings to liabilities. If Atlantic Foundry's Balance Sheet
had been subject to these accounting rules, it might not have been so
easy for its greedy owners to steal its retirees' future.

Dan

At 06:41 PM 12/6/01 -0500, you wrote:
>  The Wall Street Journal today 
>reported that on average, "unionized companies [in the steel industry] 
>support 600,000 retirees, or SEVEN RETIREES FOR EVERY ACTIVE 
>EMPLOYEE [emphasis mine], which makes it nearly impossible to make 
>money in this current era of super-low steel prices and stiff foreign 

>Norm Kurland 
>Center for Economic and Social Justice 

--
Dan Bell
International Program Coordinator
Ohio Employee Ownership Center
Kent State University
Kent, OH 44242
(330) 672-0333 << Direct number!
(330) 672-3028 general office number
(330) 672-4063 fax
dbell@kent.edu
http://www.kent.edu/oeoc/
http://cog.kent.edu