CORPORATE PENSIONS GOING AWAY
June 2, 2005
Over the last 20 years, corporate pension plans have undergone a slow but sure death, says Investor's Business Daily (IBD).
Manufacturers and transportation firms remain those most likely to end their pension plans. Observers worry those American institutions might follow United Airlines by declaring bankruptcy and dumping their pensions obligations over to the government insurer, the Pension Benefit Guaranty Corporation (PBGC). When companies turn under-funded pensions over to PBGC, benefits are often reduced due to legal limits, says IBD.
Consider the scale of America?s pension problem:
- The government estimates defined-benefit programs are underfunded by $450 billion. Of that underfunding, $96 billion comes from companies with junk bond ratings, a huge increase from $34 billion in 2002 and $4 billion in 2000.
- In 2004, nearly 200 underfunded pension plans were turned over to PBGC, the most since 1990, affecting 147,500 workers.
- PBGC estimates it currently carries a $23 billion deficit, including United's 9.8 billion.
While PBGC backs the Bush administration pension reforms, including hiking employers' pension insurance premiums to the agency, others have introduced legislation aiming to extend the time airlines can finance their under-funded pensions. Airlines would have to freeze their pension plans and replace future benefits with 401(k)s, says IBD.
However, observers say pension reform will not likely stop the steady decline in traditional pension plans. In fact, higher premiums might push some employers to phase out pensions.
But regardless of pension funding or reform, observers say companies will continue to phase out traditional pensions. For many employers, the tax-sheltered 401(k) savings plans make more sense. Some employers say they offer 401(k) plans because workers job hop more frequently, not staying with one firm for very long. Others say they must trim back old-model pensions to stay competitive with low-cost rivals who do not carry the same pension burdens.
Source: Marilyn Alva, "Corporate Pensions Going Away As Old Firms Decline, Struggle," Investor's Business Daily, May 26, 2005.
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