Retirees uneasy about the future

CHICAGO — Older workers and retirees who have toiled for their companies for decades have long viewed their pensions as money in the bank, even years before the checks arrived.

Now some are beginning to wonder just how secure they really are.

United Airlines’ threat to terminate its four employee pension funds in bankruptcy has reverberated through the airline industry and beyond. Other companies are closely watching what would be the largest corporate pension default in U.S. history, some likely pondering scrapping their own funds to help remedy their financial ailments.

And with 81 percent of corporate benefit plans underfunded, according to Wilshire Associates Inc., workers are increasingly uneasy.

“While 401(k) plans garner much of the attention, traditional pension plans remain very important to many workers and can pose financial issues for companies facing difficult times,” David Blitzer, managing director at Standard & Poor’s, said last month in a report on underfunded pensions.

Among those eyeing retirement benefits with less certainty these days is 56-year-old Kay Nelson of Minneapolis, who has worked 26 years for the same company but worries about her fund’s reliability.

“I don’t take that pension for granted any more,” she said, her concerns exacerbated by the record $422 billion federal deficit and Alan Greenspan’s comments about the need to trim benefits for baby boomers.

“I think any American worker is thinking about the safety of their pension plan right now,” Nelson said. “It’s a scary situation.”

Despite the heightened fears and the fact the government’s pension agency, the Pension Benefit Guaranty Corp., is itself operating at a deficit, experts say the vast majority of pension plan participants have little to worry about, at least for now.

While the condition of pension funds has deteriorated sharply in the past four years — the result of the bear stock market from 2000-02 plus low interest rates — S&P says there is no immediate danger to monthly pension benefits for the vast majority of employees.

“There is cause for concern,” said John Hotz, deputy director of the Pension Rights Center, a Washington-based workers’ advocacy group. “But the general message to pension participants shouldn’t be that the sky is falling. … If your company has a strong future, then your pension plan will in all likelihood be there for you.”

That’s small comfort to people like Bob Holmbeck, a retired electrician and steelworker from northeastern Minnesota.

Holmbeck, 64, worked for the National Steel Pellet Co. for 35 years. He rode out tough times in the steel industry, including strikes, layoffs and declining demand, but always had an untouchable pension to count on. Or so he thought.

Less than a year after he retired in 2002, Holmbeck saw his pension reduced by more than 15 percent and lost all medical benefits. The company’s pension obligations were dumped onto the PBGC when U.S. Steel acquired National Steel in bankruptcy, but the agency is legally limited in the amount it can cover, resulting in painful cutbacks for Holmbeck and thousands of others.

“You always hear how companies take care of you,” said the Hibbing, Minn., resident. “I thought like everybody else that you do a job for them and they’ll take care of you when it’s time to retire. But it didn’t pan out.”

Workers facing pension cuts or benefit problems can consult regional counseling programs funded by the Federal Administration on Aging.

Workers most at risk are those from companies with junk bond credit ratings and billions of dollars in unfunded benefits. The most troubled industries, according to the PBGC’s annual report, include air transportation and manufacturers of metals, industry machinery, electronics and computer equipment.

Most pension holders are on firm footing. Of 45 million Americans with traditional defined-benefit plans, only 1 million are in plans that have been taken over by the government’s pension agency and just 10 percent or so of that group face a reduction in benefits, according to PBGC spokesman Randy Clerihue.

What lies ahead is less certain.

While the PBGC has $40 billion in assets and takes in $1 billion annually in company premiums, it is paying out about $3 billion a year to beneficiaries of the 3,400 plans it has taken over during its 30-year history. That puts it on a pace to run dry at some point, especially in light of the current state of plan underfunding.

Concerns have surfaced that the pension woes of steel companies and now airlines may lead to another huge taxpayer bailout like the one for the crippled savings and loan industry in the late 1980s and early ‘90s.

Pension rights experts downplay that talk as fear-mongering. But they say workers should get up to speed to protect themselves.

“There are two things people need to pay attention to: the financial health of their pension plan and the financial health of the company,” Clerihue said. “It’s when you have a weak plan and a weak company that you really have to take notice.”

That’s the predicament faced by workers and retirees at United and other airlines. Some pilots are looking at especially big losses, since PBGC payments cannot by law exceed $44,386 a year and senior pilots are in line for annual pensions of $100,000.