Unlike the government, business leaders have the leeway
to make tough choices about their expenditures and the financial
health of their companies. Thats important as the government-backed
Pension Benefit Guaranty Corp., which insures private companies
programs, is straining to cope with giants like airlines and steel
companies defaulting on their payments to workers. The Wall Street
Journal reported January 18 on legislation Congress is considering
that would lift some regulations and allow businesses to restructure
their pension plans even more, in the interest of preventing the
underfunding problems many face.
Alcoa Inc. (NYSE:
AA), a
leading aluminum company, joined IBM (NYSE:
IBM)
as the latest in announcing a move toward defined-contribution
retirement plans, like 401(k)s, from defined-benefit plans, which
are guaranteed to pay a certain sum to workers for life. According
to the Bureau of Labor Statistics (BLS), just 21 percent of private
industry workers were in defined-benefit plans as of 2004. Forty-two
percent were in defined-contribution plans. Contribution-based plans
usually offer portable savings that workers can take with them
especially helpful considering a BLS study of baby boomers, which
showed they changed jobs an average of 10 times between the ages of
18 and 38.
Personal Responsibility 1, Welfare State 0
Bankrupt companies like Delphi obviously cant pay for
their pensions, but even financially healthy companies are deciding
that to stay in business they must shift more responsibility to
workers.
Does that mean, as Miles OBrien said on the January 17
American Morning, that were all going to be greeters at Wal-Mart
some day? Later on the show Andy Serwer warned: If you work for a
big company and you have a very generous pension plan, watch out,
because there is writing on the wall. Soledad OBrien rejoined:
Youve got a bulls-eye on you.
But another CNN regular, Jack Cafferty, acknowledged the shift as a
fact of life, even a positive. On January 14, Cafferty asked a guest
on In the Money: Whats wrong, though, with putting more of the
onus for this retirement thing on the individual?
ABCs Betsy Stark saw plenty wrong with it, declaring
workers vulnerable on the January 8 World News Tonight.
Traditional defined benefit pension plans are a vanishing piece of
the American dream, Stark said, adding that Workers at all levels
- from the rank and file to management are vulnerable, especially
if they work for old-line industrial companies with union workers.
She concluded with, Certainly not the retirement they planned for.
Planning is the key, but it must be realistic. David
John, a research fellow at The Heritage Foundation who studies
retirement policy, said that the problem with most of the media
reports and the view people have of defined benefit plans is that
theres no risk. People can see the risk when they look at their
own 401(k) or the stock market, he said, but for some reason they
think having their company take care of it takes the risk away.
Thats simply not true. The risk is present, whether its a company
managing funds or the government spending Social Security dollars.
Despite that truth and companies need to stay in
business to provide jobs for their workers, CNNs Lou Dobbs added
IBMs announcement to his War on the Middle Class series. On the
January 6 Lou Dobbs Tonight, he proclaimed middle class Americans
facing a new attack on their standards of living. Even their
pensions under assault. He reminded viewers that IBM is one of the
largest most profitable corporations in the world, recording almost
$100 billion in revenue last year. But this company still says it
needs to cut costs by ripping up a key financial contract with its
middle class work force. This is just the latest firm to go back on
its pension promises.
Christine Romans also lamented the loss of solid, dependable pensions for IBMs loyal workers, calling them the pensions that helped build the American middle class.
But John said this isnt an attack on the middle
class. This is really pulling back the curtain to reveal the
reality behind the pension plans theyre underfunded and companies
cant maintain the level of benefits they once thought possible.
The pension system today assumes that a company is going to be in
business forever and that its going to be contributing X dollars to
its plan every year, John said. But workers cant base their
futures on that assumption.
Public Benefits, Public Bailout
Private-sector workers may be taking more
responsibility for their futures, but government employees are
enjoying more benefits thanks to taxpayers. CNNs Andy Serwer cited
a new study on the January 17 American Morning saying that over
the past four years, government employees pension benefits have
grown 37 percent. USA Today reported on January 16 that that figure
applied to state and local workers, according to the U.S. Census
Bureau.
Taxpayers could also be on the hook for some private
pension plans that go belly-up. The Pension Benefit Guaranty Corp. (PBGC),
which insures private companies pension programs, is well over
$100 billion under-funded, John said. That means if enough
companies cashed in on the PBGCs obligations, there would have to
be a taxpayer bailout. And thats only private pensions in
addition to the government workers taxpayers already support, 90
percent of whom have a defined-benefit pension. To make matters
worse, the PBGC will need more money about the same time Social
Security does, John said.
What to do? John said the country faces two
responsibilities. First, because one in five private-sector workers
has a defined-benefit pension, the companies and the unions cannot
add more pension promises unless they have the money to pay for
them. Secondly, he said all workers must have the same opportunity
to enroll in an individual retirement savings account.
Minding Your Own Money
Of course, the media treat the American worker with
skepticism, especially when it comes to managing money. Even Fox
News, which generally gives more balanced treatment of individual
responsibility, took the workers-out-in-the-cold line. On
The Big Story January 6, John Gibson said: It sounds like these
big companies are basically trying to put workers out on their own.
You know, forget pension plans from us. You got your 401(k), youre
on your own.
Noting that companies have obviously had trouble
funding their pension plans, Gibson added the kicker: Well, if the
big, smart guys at the big corporations cant figure out how to make
these investments pay off the guaranteed number down the road, how
is the little old schmo with his 401 supposed to figure it out? But
correspondent Dagen McDowell reported that about 75 percent of
workers with access to 401(k)s participate in them. Though she
emphasized that that meant a whole quarter of employees arent
participating, she could have taken the approach that only a quarter
of workers need to join the crowd.
