Career Spotlight: At one firm, pensions return
The news seems to be getting worse for many workers hoping for a comfortable retirement. Bankrupt Delta and Northwest airlines are maneuvering to follow hundreds of other companies and dump their underfunded pension plans, potentially slashing the monthly payouts that pilots, mechanics, and stewardesses could collect in their 60s and 70s. And it is becoming clear that the massive pension-reform bill currently winning votes in the Senate won't be enough to completely bail out the financially troubled Pension Benefit Guaranty Corp., the government's last-resort pension insurer. Nor will the bill protect all workers and pensioners from further retirement losses. Meanwhile 401(k)'s, which were less generous replacements to start with, are proving to be even more of a disappointment because so many workers lack the time or skills to invest profitably in today's tricky market.
But amid all the doom and gloom there is a glimmer of hope that the tide may be turning. For the first time in decades, a few employers are actually contemplating starting up new pension plans. The reason: the tightening of the labor market and a growing preference among workers for a pension that promises a guaranteed check every month during retirement, instead of a savings plan that rises and falls with the stock market.
Aerospace Corp. of El Segundo, Calif., for example, started enrolling all incoming employees in a new pension plan on October 1. The 3,500-employee research firm had frozen its original pension plan in 1993 and replaced it with a 401(k). But as the job market tightened in the 1990s, the company found it had to keep increasing its contribution to the savings plan to recruit engineers. By 1999, it was contributing 8 percent of workers' pay, whether or not the worker contributed a penny. As the economy began recovering in 2003, managers realized that even that generous savings plan was not enough to recruit midcareer workers who were earning pensions at competitors like Boeing. Since the old pension plan cost only about 8 percent of payroll, the company realized it would actually be cheaper to restart a pension than it would be to further sweeten its savings plan.
"We have smart engineers who say they would rather have a monthly annuity" than a lump sum, says Charlotte Lazar-Morrison, director of human resources. And as she points out, you can't outlive an annuity. Plus, managers hoped a pension would reduce costly turnover. The 401(k) wasn't helping keep people at the firm, since they could take the money with them to a new job. "We wanted something to hold on to them," Lazar-Morrison says. So Aerospace is making workers wait five years to vest in the new pension and is delaying full payouts until age 65, she says.
Aerospace is hedging its bets by putting only 4 percent of each affected worker's pay into a pension and promising only half the traditional annuity. Workers can continue to invest the remaining 4 percent. Nevertheless, the new retirement scheme has drawn the attention of other businesses. When other managers hear what Aerospace is trying, "they kind of raise their eyebrows," Lazar-Morrison says. But she believes the experiment will show that pensions are cost effective. Workers can only hope she's proved right.
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