Pensions were once considered one of the central features of the American
Dream. Workers might not be rich, went the argument, but at least those with
union jobs were paid a wage you could raise a family on--and they could look
forward to a retirement where regular pension checks would provide a comfortable
That was the dream, but U.S. workers are waking up to a different reality
today--that pensions are fast becoming a thing of the past.
The proportion of the private-sector workforce enrolled in pension plans that
pay monthly benefits for life has been cut in half in the last quarter century.
In 1980, 39 percent of private-sector workers had a “defined-benefit”
pension plan, according to the Employee Benefit Research Institute. In 2004,
that number was 18 percent.
Today, when companies offer any retirement benefits at all, the favorite method
is a “defined-contribution” plan, like 401(k) plans. The eventual
amount of retirement checks is “defined” by contributions to individual
accounts by employers and employees.
But unlike pensions, “defined-contribution” plans aren’t
guaranteed by the government--and can disappear altogether, as employees of
Enron, WorldCom and other companies found out when they lost their retirement
savings amid the wave of corporate scandals.
Even when the company survives, 401(k) programs fall short of meeting retirees’
needs. With two-thirds of companies that offer retirement plans using the 401(k)
system, retirees will be squeezed by falling Social Security benefits and too
little in their private retirement accounts.
“Most people are going to arrive at retirement and not have adequate
money,” Alicia Munnell, director of the Center for Retirement Research,
told the Christian Science Monitor. Munnell estimates that under the 401(k)
system, the bottom one-third of new pensioners will fall into poverty, more
than three times higher than the current poverty rate for retirees.
In addition to the turn to 401(k) plans, Corporate America is out to gut the
existing pension system.
Airlines, steel and auto are the best-known cases. United Airlines, for example,
last year got a bankruptcy judge to approve its decision to default on its pension
obligations and dump them into the federal government’s Pension Benefit
Guarantee Corporation--which is already responsible for pensions at former giants
Pan Am, TWA and US Airways.
Even profitable companies with fully funded pensions are cutting back. For
example, IBM announced in early January that it would freeze its pension plan
in 2008, and convert to a 401(k)-type defined-contribution system. A similar
attempt in the 1990s provoked a class-action lawsuit by IBM employees that proved,
according to a federal judge’s ruling, the company was discriminating
against older workers by eliminating the defined-benefit formula.
Currently, IBM’s pension system, with $48 billion in assets, is fully
funded--the company didn’t even have to make a pension fund contribution
in the fourth quarter of last year. But management is determined to be on the
pension-slashing bandwagon--to “remain competitive,” said a company
The mainstream media have been filled with warnings about an impending pension
crisis. The estimated shortfall between the size of pension funds and future
obligations to retirees is $450 billion in the private sector, plus another
$300 billion in the public sector.
The gap is so big because employers have increasingly found ways to shortchange
pension funds. In particular, state governments suffering through years of budget
shortfalls are putting off pension contributions to pay for more pressing needs.
In Illinois, for example, the pension system for public educators has less than
half of what it needs to cover retired and working teachers, yet the state government
won’t make annual pension payments in 2006 and 2007.
Nevertheless, the media talk about a pension crisis is misleading. The shortfall
would only have any meaning if all pension obligations, to past and present
workers, were due immediately.
Pension funds go up and down with the overall economy, and the level of financial
markets where pension fund money is invested. What matters is whether benefits
can be paid over a period of decades, not the fund level in a particular year.
In fact, during the economic boom of the 1990s, as the stock market kept climbing
to new heights, many corporations decided that their pensions were “overfunded”--in
other words, the financial assets of the pension funds were worth more than
total obligations. Rather than grant more generous benefits, Corporate America
skimmed off the surplus as profit.
Now, though, with the stock market fallen back from its peak, companies are
using red ink in their pension funds to justify reducing or eliminating benefits.
The financial press today talks about pensions as if they were a “gold-plated”
gift to employees. Workers with a decent pension plan--especially those who
fight to defend them, like the New York City transit workers--are portrayed
as clinging to an fancy perk, at the expense of other working people.
But, of course, neither New York’s billionaire Mayor Michael Bloomberg,
nor Gov. George Pataki, nor New York Post publisher Rupert Murdoch
will ever worry about what they will live on during retirement.
And seniors living on a pension check don’t live in luxury. Average annual
benefits for retired state and local workers were $19,875 in 2004, according
to the U.S. Census Bureau. That’s not far from the poverty line for a
couple. And because private employers have made harsher cuts, these are the
most generous pensions today.
Pensions are another front in the employers’ offensive--with the tiny
bunch of super-rich fat cats demanding that working people tighten their belts