OLEAN -- Maybe I'm just getting senile, but each successive presidential election campaign increasingly seems to resemble scenes from Alice in Wonderland.
Among the subjects of vital interest to the nation that have tumbled down the rabbit hole while TV and print journalists obsess on who did what and to whom during the Vietnam years is a dramatic and traumatic change in the way we support ourselves during the retirement years -- pensions.
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The change is recent and it is indecent. I tell my students they must start thinking about it even now, for it will affect their lives and families deeply.
Until a few years ago, the pension plan most working Americans were used to was called defined benefits. A worker upon retirement received a specific benefit -- usually a monthly check -- after deferring earnings during all those years on the job, and having them supplemented by sums from the company. All that went into a pension fund, under which the worker had certain rights and options.
That -- quietly and without much media attention -- has gone the way of the dodo bird. The percentage of defined benefit plans covering American workers is headed for imminent single digits.
These sensible plans, which inspired worker loyalty and production and the ability to plan a full life, mainly have been replaced by two things dearly embraced by corporate greedballs -- "cash value" plans, and 401(k) funds, which were never intended to provide the bulk of retirement assets.
The cash value retirement sounds like a good deal to young workers who never really start thinking about the subject until their mid-40s at the earliest. Under this plan, the company gives you what amounts to a big severance payment in one lump sum when you leave -- maybe a year's salary for every 10 years worked, or similar formula. It sounds good in your 20s and 30s. Hey, we can get that new car now.
But it's a one-time payout, and after you've switched jobs several times -- as workers are encouraged to do these days by big firms that just love payroll attrition -- you are left looking at life at 59 with no monthly income.
Under the 401(k) plan, designed and enacted to encourage responsible private individual investment which would only supplement one's pension, there is no guarantee of any specific benefit. That's what the corporate financial whizzes love about it, and why many companies now make self-directed 401(k)s their primary retirement plan. The often naive worker is left to choose where his payroll deductions go -- stocks, bonds, mutual funds, real estate investment trusts, etc. The company matches the worker contribution with a percentage -- more often these days a paltry one, such as a dime or a quarter for every dollar the worker coughs up, or frequently a few shares of company stock at the current market price.
When retirement comes, if the worker has the luck to quit during a year when the stock market is booming, life is swell. If the worker retires in a bear market or sour economy, he's left looking at investments worth a lot less than they were purchased for, or at company matches of now-worthless stock shares. Think Enron.
All that is alarming enough. What's particularly frightening at this juncture of American history is this:
The federal agency assigned to insure private pension plans is going broke at an increasingly rapid pace.
At the end of 2001, the little-publicized Pension Benefit Guaranty Corp. had an $8 billion surplus. At the end of 2002, it had a $4 billion deficit. By summer of this year, the PBGC had an $11.2 billion deficit. A $19.2 billion dive into red ink in just two-and-a-half years spells immense trouble, even for a huge federal agency with lots of assets that cover 44 million workers and retirees.
If the PBGC were a private insurance company regulated by a state commissioner, notes Jonathan Tasini, president of the Economic Future Group, on the Web site TomPaine.com, it would be in receivership.
There's worse news. American companies have traditionally left their pension plans underfunded at the end of each fiscal year by about $20 billion. That figure is currently $350 billion. Many of these firms got in the hole a decade or so ago when the stock market was booming and good times had no end. The pension fund portfolios were fat. When the millennium came and the markets crashed, the pension funds deflated. Workers were not told.
More bad news: Major airlines that are going belly-up may throw the PBGC under such new pressure to provide pension checks the agency could spiral into insolvency so fast it triggers another savings-and-loan bailout.
The current loony-tunes system we have in this country pretends to require firms to make promised pension contributions even as they go bankrupt. But they don't, and no one makes them. Bankruptcy always trumps pension requirements.
US Airways, which filed for bankruptcy two weekends ago, and the broke United Airlines, also in bankruptcy, have both made clear they will not make pension payments while they are trying to escape Chapter 11 status. US Airways had a $110 million payment due last Wednesday. United has already stopped making payments on its four employee pension plans, which are currently underfunded by $8.3 billion. If US Airways and United continue in this fashion, the PBGC estimates it will be forced to assume responsibility for $6.4 billion worth of pension checks. And Delta and American may not be far behind. (Not that these huge, arrogant carriers don't deserve it. For years they intentionally overcharged customers and treated them like dog doo until fairer, better-run discount air carriers gained sway.)
Bradley Belt, the executive director of PBGC, is calling for quick reforms. He told CBS.MarketWatch.com last week that "we need to make clear pension contributions are required whether a company is in bankruptcy or not."
Douglas Elliott, the president of the private Center on Federal Financial Institutions, says the PBGC is in even worse shape than the much-criticized Social Security system, which most experts predict will run out of funds by 2031. Elliott told The New York Times if the airlines default on their pension plans the PBGC would run out of funds by 2018 and would need about $110 billion from Congress to revive it.
The PBGC is currently funded by premiums the participating companies pay, and by investment returns on those premiums. But experts like Elliott and Belt are concerned the taxpayers will be brought into it if PBGC goes belly-up, and will have to bail out the pension agency just like we did in 1989 when the national savings and loan scandal broke a similar federal insurance agency protecting depositors. That one cost you and me $200 billion in today's dollars.
This doesn't seem to be on the presidential radar screen, and a distracted Congress is barely paying attention. About the only ones calling for reform are Ohio Republican John Boehner, who heads the House Education and Workforce Committee, and California Democrat George Miller, the ranking minority member on that panel.
"The possibility of a taxpayer bailout is looming," says Boehner.
|Niagara Falls Reporter||www.niagarafallsreporter.com||Sept. 21 2004|