The Shekel Drops, Out of the Sky / Insurance for Free

Here's an idea: From now on, let all insurance coverage in Israel is free. The insurance companies won't like it, because they'd go broke, but consumers would be happy.

Doesn't make sense, you shrug. Evidently, you don't work for the Airports Authority. The wildcat strike yesterday was about exactly that: They are demanding free insurance for their pension savings.

And their demand is not a trivial one, either. Their pension reserves stand at about NIS 2.5 billion, and the one who would have to insure this figure is you - the taxpayer.

All the Airports Authority workers went on strike yesterday, even though only 20% of them (630 out of 1,400 tenured workers and 1,700 temps ) are demanding the coverage. Naturally, the 20% are among the workers who have served the longest and are the most powerful, including the labor reps..

The other 80% have the usual contributory, cumulative pension arrangement, which means they put aside part of their pay each month into pension funds or provident funds or whatever they choose. Their future pension income will depend on how well their savings fund does on the stock market.

The 20% demanding free pension insurance, all of whom were hired before 1994, have an arrangement called "budgetary pensions," which means it costs them personally almost nothing: the employer is the one putting aside money each month. In some cases, the employees are putting aside absolutely nothing. The money is not invested in the stock market and is not exposed to market downturns. The employer assures that when they retire, they will get 70% of their last salary each month. Period.

While workers love "budgetary pensions," there's one snag: the employer bears responsibility for the workers' pension money. If the employer is big and stable, like the state, that's fine. But if the employer is not big and stable, and gets into trouble, that pension money could vanish.

That is precisely what happened to workers at Bikur Holim Hospital in Jerusalem: its collapse left veterans without any pension income. Only the state's munificence saved them from starving.

That is the only risk involved in budgetary pensions, which most workers are prepared to take in exchange for the security of knowing they'll get 70% of their last salary each month, for the rest of their lives. And they are absolutely unwilling to pay an insurance premium to assure that that one risk won't materialize.

At the Airports Authority, workers are demanding that very thing - insurance against that risk, for free.

Who should pay the homeowners?

Two weeks ago the Tel Aviv District Court ruled against the Airports Authority, in favor of homeowners whose property value dropped following the construction of Terminal 3 at Ben-Gurion International Airport. The homeowners sued for NIS 5 billion. If the Airports Authority loses its appeal, it may face a bill that high, which could impair its ability to pay the NIS 2.5 billion in pension money to its veteran workers.

Who should actually bear the NIS 5 billion bill will be fought over for quite some time. The Airports Authority told TheMarker that the homeowners won only because the finance minister at the time, Avraham Shochat, promised to indemnify them for loss of property value. Clearly the Airports Authority feels the state should bear responsibility, even though not only Shochat but the authority itself promised the homeowners the same indemnification.

In fact the authority workers want the state, in effect, to assume responsibility for that NIS 5 billion, to ensure their pensions are safe. They also want to see their pensions managed externally, through provident funds. Basically they want the best of all worlds: budgetary pensions that can make gains like contributory pensions, but that are safe as houses.

Nice, isn't it. Who wouldn't want that? But you can't have it, unless you work among one of the strongest groups of employees in Israel, like those at the Airports Authority. The state should not bow before the wildcat strike at the airport - lest it find itself in the same position in relation to other powerful groups of workers, for instance at the Israel Electric Corporation.

Insurance should not be free. If workers want insurance against their employer's collapse, they should have to pay for it.

The Airports Authority said that the issue at stake isn't free insurance. The workers aren't seeking insurance against fluctuation in the capital markets, it said, just that the money won't be used for purposes other than pension payments, or be exposed to third-party claims following the NIS 5 billion award to homeowners after Shochat promised to indemnify them from loss of value.