Pension tension
Workers can no longer count on company-funded retirements
DUNDALK, MD.--For 36 years, whenever his boss at now defunct Bethlehem Steel asked, Edmond Groff worked overtime. Double shifts--16-hour workdays--at the company's Sparrows Point plant near Baltimore were common. Sometimes the steelworker drove home, showered, donned fresh clothes, and returned for a third shift. The reason: Bethlehem had a long-standing contract with the union to increase the pensions of steelworkers who put in a lot of overtime. "I worked to get money so my wife and I would have time to be together and travel," says Groff, now 56.
That sacrifice went unrewarded because shortly after Groff retired in 2002, Bethlehem handed off its underfunded pension plan to the federal Pension Benefit Guaranty Corp. But the PBGC backs only standard pension benefits, not those awarded as overtime bonuses. So it cut Groff's pension from $2,520 a month to $1,420, nowhere near enough to cover his mortgage, car payment, and health insurance. Groff had little choice but to go back to work. He was lucky, he says, to find a $12-an-hour job processing insurance claims, a $20-an-hour cut from his steelworker pay. "This was supposed to be the time for us," says Groff. "Now I'm working, but I don't like it."
The great majority of the 44 million Americans who have earned a private pension aren't likely to suffer Groff's plight. Still, with concerns being raised about Social Security's fiscal health, there is also alarm about the second most important source of financial support for retirees--private pensions. In the past several weeks, United Airlines and US Airways have handed off underfunded pension plans to the PBGC, which announced in November it faced a future $23.5 billion shortfall. Analysts now fear a stampede of corporate copycats could threaten millions more pensions. And that would create pressure for a massive taxpayer bailout. "We have a huge pension underfunding problem," says Rep. John Boehner, the Ohio Republican who chairs the House committee that oversees private pensions.
The Bush administration last week unveiled its reform plan, but the few specifics released were quickly questioned. Unusually for Washington, the battle over pension reform will most likely not be fought along party lines. On one side, economic purists say the proposals don't go far enough to stop firms and executives from gambling with workers' pensions. On the other, a bipartisan alliance of executives and union leaders argue that pension providers need far more flexibility and help.
Phaseout. The reason for urgency is clear: Corporate America, which boasted more than 112,000 pension plans in 1985, has since terminated about 80,000 of them. As a result, the share of working Americans earning a pension has dropped from more than 35 percent in 1980 to less than 20 percent today. That decline may even accelerate, as companies say it is no longer in their interest to reward longevity on the job with an old-age stipend. IBM, for example, is winding down its pension plan by limiting all employees who started after Jan. 1, 2005, to a 401(k) savings plan.
The corporate shift from pensions to 401(k)'s usually results in lower payments to retirees. A recent Urban Institute analysis found that fewer than half of today's 30-something workers will collect any 401(k) retirement payments, either because they don't participate in a plan or they cash out early when switching jobs. Because of small corporate contributions and subpar investment returns, the average 30-something who does manage to collect from a 401(k) will get less than $400 a month (in 2003 dollars) on turning 67, the institute predicts. The average 70-year-old pensioner today gets more than twice that.
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