Pensions may become footnote in
By Pamela Yip: The Dallas Morning News
February 13, 2005
DALLAS — The traditional pension plan is in its twilight.
The number of Americans covered by pensions that promise fixed
monthly payments until death has been essentially unchanged for more
than 20 years, while 401(k) accounts have mushroomed.
And the decline in traditional pensions is beginning to build on
itself, many experts say, as more companies realize that for
competitive reasons, they don't need to offer them, or can't.
In place of pensions, more workers must build their retirement
security on self-directed plans such as 401(k)s, taking over the
responsibility — and the risk — for investment decisions once left to
professional money managers.
Whatever the merits of that shift, experts say, the trend is
clear and won't be reversed. As new companies are launched, virtually
none offers a pension.
"I refer to it as a dinosaur, and we're near the end of the
paleontological period," said Stephen Skonieczny, a partner in the
employee-benefits group of Dechert, a New York law firm. "Their number
is coming up."
The forces battering the traditional pension are numerous.
114,396: The number of private-company pension plans in 1985.
31,135: The number in 2003.
0: Estimated number of plans created in the past decade.
44,000,000: The number of Americans covered by the pensions in 2003.
Source: Pension experts; Pension Benefit Guaranty Corp.
The Dallas Morning News
Changing employment trends, rising costs for administering the
plans, Wall Street's demand for ever-increasing corporate profits and
battered investment assets all play a role. So does Americans'
longevity, as companies find their pension plans paying benefits for
retirees 20, 30 or more years deep into retirement.
The decline of the pension also finds a political echo in
Washington, where the Bush administration pushes its vision of an
"ownership society." The White House backs the idea of private
retirement accounts to partially replace Social Security.
Ultimately, experts say, even employees in healthy industries
should be prepared for the possibility their company will get out of
the pension business and distribute the plan's assets to employees and
That troubles many experts, who say such a shift would carry
massive ramifications for retirement security that are little
The main worry is that without benefits that continue until
death, some retirees will run out of money and die in poverty, the very
problem that spurred the creation of pensions and Social Security.
The first private pension plan in the United States was
established in 1875 by American Express.
"There were a few companies which blazed the trail, and then it
became a competitive thing," Skonieczny said. "If you wanted to secure
the best work force, you had to match the compensation program as best
as you could."
"I cannot think of a single company that has started a new
defined-benefit plan in the last few years," said Donald Straszheim,
president of Straszheim Global Advisors in Los Angeles. "No new
companies are starting them, and I would guess that's been the case
since at least 1990."
"Today, a large percentage of the defined-benefit plans enjoyed
by workers are part of collective-bargaining agreements negotiated by
unions," said Steven Kandarian, former executive director of the
Pension Benefit Guaranty Corp. (PBGC), the federal government's insurer
of pension plans.
"Absent a catastrophic event such as bankruptcy, it is highly
unlikely that unions will consent to these plans being terminated. So
the decline of the system is likely to be slow," he said.
But there are ominous signs for traditional pensions and the
PBGC, particularly among the ranks of union-heavy employers and
old-line industries with pension plans. Two of the industries stressing
the agency: steel and airlines.
The airlines' financial crisis touches the carriers' pensions,
employees and the federal government. As some airlines abandon their
pensions in bankruptcy, leaving the PBGC to pick up the tab, others
feel pressured to do the same.
David Hess of Southlake, Texas, finds himself in the center of
that storm. He has been a pilot for Continental Airlines for 17 years.
His wife is also an airline pilot.
Worrying about the future of their pensions is difficult,
especially "when you've been around for a long time and you've counted
on that for your future years," said Hess, 45.
"We realized that we had to do everything we can on our own —
maxing out our 401(k) — because there are certainly no guarantees in
To ease the pressure on the PBGC from employers' abandoning
their pensions, the Labor Department proposed in January a 60 percent
increase in the insurance premiums paid by pension providers.
Each pension-plan participant would cost companies $30 in
premiums, up from $19. Employers that let their plans become
underfunded would have to pay even more.
Many experts say that far from shoring up traditional pensions,
that move will encourage more companies to pull their plans.
Last year, the PBGC racked up a $23.3 billion deficit, double
that of 2003.
That frightens Edna Hart of Dallas. Hart, 84, gets a $300 check
each month from the PBGC, which took over the pension of defunct
Braniff Airways, her late husband's employer.
"I'm scared spitless," she said. "The PBGC is squeaking. They're
running out of money."
Nothing for inflation
One downside to pensions is they are rarely adjusted to keep up
with inflation. But their best feature is the lifetime security.
Retirees who want to achieve the same level of safety would need
to use the money in their 401(k) accounts to buy a lifetime annuity
from an insurance company. That would yield a fixed, pension like
Absent that, and with reduced Social Security benefits likely in
the future, many retirees could face an unpleasant situation if they
outlive their savings.
"That's a pretty critical point to this," said Ari Jacobs, a
pension consultant with Hewitt Associates, a consulting firm. "We're
kidding ourselves if we think there isn't one."
(Dallas Morning News correspondent Danielle DiMartino contributed to