Outten & Golden: Empowering Employees in the Workplace

Pensions Going the Way of the Eight-Track?

May 16th, 2005 | Paula Brantner

If you’re planning your financial future around a pension from your employer, these days you better have a backup plan, as the traditional pension is about to become as ubiquitous as the Betamax or the 8-track. Employees of United Airlines are the latest, but most certainly not the last, to see their retirement security shattered when their employers were no longer able to honor their pension obligations. By the time our next generation of workers (will it be “Generation Z?”) starts thinking about retirement, there won’t be anyone left to remember actually having a pension, just as no one still plays those 8-tracks either.

One headline reads Why pensions are becoming even scarcer, while another talks about Retirement’s Unraveling Safety Net. For United retirees, no longer “fly[ing] the friendly skies,” instead, it’s “the sky is falling.” (See United’s Pension Debacle.) Panicked workers nearing retirement wonder if there’s anything they can do, short of “increas[ing] income or decreas[ing] spending,” as one financial planner said, noting “There is no guarantee of that money.” As an incredulous teenager might say, “well duh!”

Those who have carefully planned over the years and have already retired now rely on what financial planners call a “three-legged stool,” of personal savings, Social Security, and pension benefits. The Washington Post tells the story of 80-year old Junior Paugh, whose “predictable world,” largely a result of working for one employer for 41 years, is described this way:

He never is short of money, thanks to Social Security and his company pension that will last as long as he does. Health care costs him next to nothing, thanks to Medicare and retiree health insurance. His Baltimore County home is long paid for, thanks in part to a below-market price of $4,400, a result of wartime subsidies for defense-related housing construction.

(See Washington Post article.)

Junior’s children, in their fifties, and grandchildren, in their twenties and thirties, will not have it nearly so predictable. The children worry that the lifetime health benefits and solid pension that their father now receives (and they expect) is dependent on the financial health of their employer, which has thus far survived several mergers and reorganizations, but could still fail in their lifetimes, as many other seemingly profitable companies have. They worry about the future of Social Security, and whether it will maintain the level of benefits that they expect. But the value of the houses they were able to purchase will also help them through retirement, as they can sell their homes and downsize, if needed.

The youngest generation of Paughs don’t expect to remain with a single employer for decades, and don’t expect any pension benefits, except for 401(k)’s. It’s difficult for them to save anything, and they don’t expect to own homes either. Their strategy, to date, is to put their trust in the “Ownership Society,” hoping that their investments, not the government, will take care of them. One grandchild, who struggles financially, says “I see how my grandparents were able to get by, but my husband and I just struggle from paycheck to paycheck. I don’t have a pension and I’m not expecting Social Security to hold up long enough for me. Where is all the government’s money going? Who is it benefiting? Nothing is benefiting me.”

It’s clear that Junior’s safety net is soon going to be obsolete, as the Baby Boomer generation hits retirement. Only half of American workers have any kind of retirement plan at work where they work at all. Well under half of those (only 20% of all workers) have traditional defined-benefit plans (based upon years of service or another formula instead of the amount of contribution made). You might call those 20% the lucky ones, until you learn that 75% of them are relying on underfunded plans: plans like the ones at United Airlines. (See Christian Science Monitor article.)

Last week, when it received a federal bankruptcy court’s permission to terminate its pension plans, United Airlines became the biggest pension defaulter in the history of corporate America. When the court’s decision is finalized, United will unload $6.6 billion of obligations onto the Pension Benefit Guaranty Corporation, the federal agency that insures corporate pensions. For some employees, it won’t make much of a difference, but for pilots and other employees planning their futures around six-figure pensions, the change will be devastating, due to the PBGC’s upper insurance limits, currently up to $45,614 this year for someone retiring at age 65.
Jerry Jedynak, a customer service agent at Chicago’s O’Hare International Airport since 1974, describes it this way: “Imagine being with a woman for 31 years and having that relationship shattered one day to find out you’ve been lied to and cheated. You’re going to ask yourself, were you a fool? Why didn’t I see it coming?” (See Associated Press article.) Furious United employees, already bitter after having given up $2.5 billion a year in wage and benefit cuts over the last several years, may be going on strike soon. (See Chicago Sun-Times article.)

Some former and current United employees, however, are taking a different approach to call attention to their plight: posing for a calendar called “Stewardesses Stripped (Of Their Pension?)” (See Associated Press article.) Each calendar page, of the five women in various stages of undress, is accompanied by commentary on the flight attendants’ plight, “Coffee, tea, or me without a pension?” reads one. “Marry me, fly free — but don’t expect anything from my pension,” says another. And the cover shot: “Are your butts covered? We thought ours were too.”

The project’s creator, Connie Baker, was inspired by the movie “Calendar Girls,” and decided to “create a little humor in people’s lives, make it fun, while at the same time getting our message across.” She’s serious about pointing out, however, that she “wanted to raise awareness for people out there that it can happen to you, and you have to take care of yourself. You have to take an active role in your retirement. Don’t depend on a company to do it for you, even if you’ve worked there your whole career.”

While the PBGC is bailing out United, it remains to be seen how long that agency will be a viable safety net. With the United default, the pension agency’s deficit will rise to $23 billion, while as recently as 2001, it had a surplus of $7.7 billion. As the New York Times points out, “If the pension agency itself was pushed toward bankruptcy, some 40 million Americans who are covered by traditional corporate pensions would be more vulnerable to catastrophic losses. In addition, taxpayers would be called upon to rescue another failing federal institution, as in the savings and loan bailout of the 1980’s. ” (See United’s Pension Debacle.)

As the PBGC’s Executive Director, Bradley Belt, points out, “When these losses are incurred, ultimately somebody is going to have to pay for them. The question is who is that going to be? Will our current premium payers get left holding the bag? Do we cut back benefits to participants? Or ultimately will the taxpayer get left holding the bag?” (See Christian Science Monitor article.)

If Belt doesn’t know the answer to these questions, you can bet that it’s something our politicians needed to start thinking about — like yesterday. Otherwise the letters PBGC are going to soon sound a lot like S&L, pensions are going to sound like 8-tracks, and retirement security will be yet another elusive aspect of the American Dream soon lost to us forever — part of the “good old days” about which previous generations can only reminisce.

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