This piece originally appeared on Livemint.com
One is a venerable private American institution, the other, the very definition of job safety in India. Auto maker General Motors employed close to a million at its peak, the Indian Railways, 1.65 million. When they started, in an era of low life expectancy, an employer paying pension for life was a noble HR practice. But their workforces grew, people started living longer, it turned into a cross for employers, cramping growth and possibilities.
Mounting pension liabilities contributed to pushing GM to the verge of bankruptcy during the 2008 credit crisis, before the US government bailed it out. The company has since aggressively—and painstakingly—been addressing its estimated pensions obligations, which exceeded its revenues in 2008. At the beginning of 2014, that obligation stood at $105 billion, an amount that can potentially buy it Ford Motors, Tesla Motors and Fiat Chrysler today.
GM has been offering payouts to former employees and transferring the burden to insurers. It has also shifted from so-called defined benefit plans (where the employer promises pension for life, regardless of employee contributions) to defined contribution plans (what employees receive is a function of what they contribute). And the occurrence of the words pension and pensions in GM’s annual report has come down from 433 in 2008 to 134 in 2014.
Back in 2004, the government of India also made the switch from defined benefits to defined contributions, but only for employees joining service after 2004. The Indian Railways had 1.44 million employees in 2004. It’s been setting aside progressively larger sums to fund their pension, leaving it with little to finance the expansion and modernization of the country’s rail network. And even then, its pension problem is far from over.
A COMPARISON OF PENSION BILLS
THE EMPLOYEE BASE OF THE TWO ORGANIZATIONS
FUTURE EXPENSES FOR THE ORGANIZATIONS