Your pension, and all your benefits actually, are part of your hourly wage. Yes, although it may not appear on your pay stub, it is actually part of your hourly wage.

That’s how:

When companies price their product, they include all the costs of producing the product or service and then add profit. The cost of production includes your “tax rate,” which is the cost of your actual hourly wage plus the cost of your benefits, plus the cost of your share of heating, lights, desk, computer, and any other tools or factory space. , divided by the actual number of hours you work (generally 1800 hours).

Wait, say, 40 hours a week times 52 in a year is 2080 hours! It is true, but you have to subtract the two weeks of vacation, one week of illness and approximately 11 holidays. That’s 80 hours of vacation, 40 hours of sick leave, and 88 hours of vacation for a total of 208 hours that you are paid for but not actually working. Subtracting that from 2080 leaves you with 1872 hours of work. Rounding that to 1800 makes the calculations simple and includes a little mattress for some unexpected free time.

Load rate = (((employee salary + cost of employee benefits) + employee share of infrastructure costs) / 1800 annual work 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 to pick a number. If you pay $ 200 a month (fifty dollars a week) for health care, you can estimate that your business 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 business adds that to your hourly rate. Do the same with your pension benefits and any other benefits that your company provides. If you are given a cell phone, that cost is calculated in the hourly rate and added together to find the total cost to the business. Your tax rate also includes the portion of your social security that your employer pays.

Suppose your pension after 25 years is $ 1,000 per 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 for 20 years) or a total of $ 240,000. Divide that total by the number of years you worked, say 30, and then divide by 1800 hours.

(240,000 / 30 = 8,000) / 1800 = $ 4.45 per hour

I know I’m oversimplifying the equation, as the company is not just putting cash in a vault. They invest in something that pays them interest, so the actual hourly cost is much lower, but this will work for our simple purpose.

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

Therefore, for each piece 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 figure out what to charge the customer, they add that $ 3.60 to each and every party. Wait, that number included the money to pay for his future pension! The company does not give you anything; Today the customer is paying, as part of the purchase price for each piece he made, money that the company will not pay until he retires.

If the company already picked it up when it sold the product, how come it continues to hear from its elected officials and the press talking about the huge inherited cost of auto worker 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 hoped to return the money later. This combination 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 Charlie Sheen’s father worked for to run it, he wanted to close the pension fund, distribute the cash, and make arrangements to pay future pensions. of future income. Now the character in the movie really knew there would be no money when those pensions expire, but since he expected to sell the company much earlier, what did he care?

The automakers did the same, 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 are badmouthing “inherited costs.” It is not the real cost of pensions that is the problem; the problem is years of money mismanagement by the automaker’s top management.

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 earn that total salary. Just by 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 free of liability.

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 that they used to pay go? Why in companies they benefit, of course!

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