Hard economic times are threatening U.S. workers` retirement dreams by hastening a trend toward riskier pension plans and discouraging small businesses from even starting such plans.
Adding to the problems are huge layoffs at industrial giants such as General Motors and IBM. Besides wiping out high-paying jobs, the layoffs are capping the pensions of thousands of middle-age workers at amounts lower than they had expected to receive, and few are likely to make up the difference at future jobs.
That`s because nearly all pension plans provide the most rewards to people who stay at one company for their entire careers. Studies show that a middle-income worker could receive only half as much in pension benefits if he works for several employers instead of one.
These developments suggest the retirement system that has served America well since World War II is unraveling at a faster pace than most experts had predicted.
Top White House and congressional officials recognize the seriousness of the problems, and the concern about pensions could become an issue in the 1992 presidential election.
The prolonged business slump has caused more and more companies to shift from traditional pension plans, in which firms put aside money to pay a guaranteed level of benefits for life, to savings programs such as so-called 401(k) plans, to which workers also contribute.
Some workers like the savings plans because capital can accumulate more quickly than in traditional programs, and they may take the money with them if they change jobs. But the savings plans are not federally insured, and experts warn that they transfer the risk of investing the money to workers, who are often untutored in such matters.
This shift began in the late 1970s but has accelerated over the last several years.
For example, in fiscal 1989 the total number of traditional plans dropped by 10,395 as many companies terminated plans and paid workers what they were owed at that point, according to an analysis of IRS figures by Chicago lawyer Peter Kelly.
By contrast, U.S. corporations created 9,637 savings plans in that year.
With the weak economy in fiscal 1990, corporate America backed away even more dramatically from retirement programs. Not only did the number of traditional plans drop by a record 14,437, but the total number of savings plans also fell for the first time ever, registering a decline of 5,672.
Companies cannot take back any pension benefits that retirees or active workers have qualified for under terms of their plans, but they are free to reduce the level of benefits that workers will be paid in the future.
Kelly, who advises the U.S. Chamber of Commerce on pension issues, said increased federal regulation of traditional pensions also has prompted companies to shift to the savings plans.
Consequently, the Bush administration and business leaders are lobbying Congress to simplify the rules for both types of plans, particularly for small businesses, which often cannot afford to hire a team of accountants and lawyers.
Labor Secretary Lynn Martin has proposed exempting companies with 100 or fewer workers-98 percent of U.S. firms-from administrative paperwork if they create savings plans and contribute 2 percent of each worker`s pay to them.
This would improve prospects for some of the 42 million Americans-nearly half the work force-who have no pension coverage.
Critics say there needs to be a more comprehensive solution. Karen Ferguson, director of the non-profit Pension Rights Center, warned Congress recently that Martin`s plan could bring only ”token benefits to rank-and-file workers” while giving employers ”an easy out” from providing more substantial programs.
Pension problems have been overshadowed so far by more basic worries about job losses, the competitiveness of U.S. industry and the immensity of the nation`s health-care woes. In fact, many companies have slashed contributions to pension funds-sometimes leaving them with little surplus to protect against unexpectedly low investment returns-to keep up with soaring health-insurance premiums.
”While national health care is terribly urgent, Congress ought to pay attention to the impact of this serious recession on the private-pension system,” said Merton Bernstein, a law professor at Washington University and co-author of two books on retirement policy.
Experts warn that the cutbacks in private pensions could strain the government`s massive Social Security programs and create social tensions once the large Baby Boom generation begins to retire early in the next century.
The number of Americans 65 and older will reach 65 million by the year 2030, up from 30 million now, said the Population Reference Bureau, a non-profit group, in a report released Friday.
The key question will be ”how do we invest in America`s future” to protect and expand the Social Security system ”while meeting the social, economic and political needs of today?” the report asked.
Also posing threats to the nation`s pension system are the recent bankruptcies of large companies such as Pan Am.
James Lockhart, who heads the federal agency that insures pensions, last month said its assumption of $900 million of Pan Am`s pension liabilities has contributed to an overall deficit in the agency`s finances of more than $2 billion.
Lockhart warned that if his agency has to bail out many more corporate pension funds, it may have to turn to taxpayers for a bailout of its own.
The administration is asking Congress to grant the Pension Benefit Guaranty Corp., the agency that insures traditional pensions, more powers to recover money from troubled companies that dump pension plans on the agency.
Lockhart said ”a bunch more” companies ”that are badly mauled” have let the funding of their pension plans drop well below the level of future obligations.
Although the agency does not regulate how a company handles its pension monies, it must, by law, take control of any funds that cannot meet their payment obligations.
Even some workers who felt they had been taken care of have new worries.
For example, a number of state and local governments recently dipped into pension plan surpluses to cover operating deficits despite uncertain prospects for paying back the money, if needed, as more workers retire.
And the Manhattan district attorney`s office is investigating whether the late British publisher Robert Maxwell siphoned off millions of dollars that were supposed to go into employee pension and savings plans at his New York holdings.
