Where does your pension come from?

Your pension, and all your benefits, in fact, are part of your hourly wage. Yes, even though it may not appear on your pay stub, it is in fact part of your hourly wage.

That is how:

When companies price their product, they include all the costs of producing the product or service and then add profits. The cost of production includes your “loaded rate,” which is the cost of your actual hourly wage plus the cost of your benefits, plus the cost of your share of heat, lights, your desk, computer, and any other tools or workspace. factory, divided by the actual number of hours you work (usually 1,800 hours).

Wait, you say, 40 hours a week times 52 in a year is 2080 hours! True, but you have to subtract the two weeks of vacation, one week of sick leave and about 11 vacations. That’s 80 hours of vacation, 40 hours of sick leave, and 88 hours of vacation for a total of 208 hours that you get paid for but don’t actually work. Subtracting that from 2080 leaves you with 1872 hours of work. Rounding that up to 1800 makes the math simple and includes a little cushion for unexpected free time.

Taxed rate = (((employee salary + cost of employee benefits) + employee share of infrastructure costs) / 1,800 annual working hours). I stole this equation from Wiki Answers.com

What do the parts of the above equation mean? Your salary is the actual rate of pay you earn each hour, say $18.00 just for picking a number. If you pay $200 a month (fifty dollars a week) for health care, you can figure that your company also pays about $200 a month (your total health care cost is actually about $400.00 a month). Take $200 for 12 months and you get $2,400 a year and divide by 1800 hours and you get $1.34. Your company adds that to your hourly rate. Do the same with your pension benefits and any other benefits your company provides. If you are given a cell phone, that cost is calculated at the hourly rate and added up to find the total cost to the company. Your taxed rate also includes the portion of your social security that is paid by your employer.

Suppose your pension after 25 years equals $1,000 a month, your company starts paying at 65, and you are expected to live to 85, then the company will pay $1,000 for 240 months (12 months times 20 years) or a total $240,000. Divide that total by the number of years you worked, say 30, and then divide by 1,800 hours.

(240,000 / 30 = 8,000) / 1,800 = $4.45 per hour

I know I’m oversimplifying the equation since the company doesn’t just put cash in a vault. They invest in something that pays them interest, so the actual cost per hour is much lower, but this will work for our simple purpose.

If you earn $18.00 per hour, your actual cost to the company is $22.45 per hour. You must still add the employer’s contribution to social security, health insurance, workers’ compensation, heat, lights, tools, etc. As a general rule, those costs are at least equal to your hourly rate or a total of $36.00 per hour. If your company offers generous benefits, then you could calculate three times your hourly rate or $54.00 per hour charged.

So, for every part you make or paper you handle, your business must charge the customer $36.00. If you work on an assembly line and make 6 parts per hour, it takes you 10 minutes per part and your labor alone costs the company $3.60 per part.

When they decide how much to charge the customer, they add $3.60 to each and every part. Wait, that number included the money to pay your future pension! The company is not giving you anything; the customer is paying today, as part of the purchase price for each part you made, money that the company won’t pay until you pick it up.

If the company already collected that when it sold the product, how come you keep hearing your elected officials and the press talk about the huge legacy cost of autoworker pensions? Because either the person speaking or writing has no idea where and how pensions are paid or has a vested interest in lying to you.

In the mid-1960s, the government “borrowed” from the social security fund to pay for social programs called the Great Society. They expected to return the money later. This mix of funds worked so well for the government that companies lobbied for the same privilege.

If you saw the movie Wall Street, you must remember that Gordon Geko did not want to buy the airline that Charlie Sheen’s father worked for, he wanted to close the pension fund, distribute the cash and arrange the payment of future pensions. of future income. Now, the character in the movie really knew that there would be no money when those pensions came due, but since he expected to sell the company much sooner, what did he care?

The car companies did the same thing, collecting money for future pensions as each car was sold and then not putting that money in a separate account, they used it to cover current expenses. Now that the bill is due and companies have to pay pensions, they speak ill of “inherited costs.” The problem is not the real cost of pensions; it is years of mismanagement of money by the automaker’s top management that is the problem.

The correct way to look at it is that your actual salary is the sum of your hourly rate PLUS all the benefits your company pays. If you were to buy them yourself, you would have to make that full salary. Simply using your hourly rate of $18.00 plus your pension cost of $4.45, your total hourly wage should be $22.45 and you buy your own pension; your company is out of danger.

So if you have a pension now and your employer says, “We’re going to cut pensions next year because it’s too expensive,” where does that $4.45 an hour they used to pay go? Why in the benefit of companies, of course!

So if you now have to buy your own pension and pay $4.45 for 40 hours, you will have ($4.45 x 40) $178 a week less take-home pay. Most honest people would call it a pay cut.