Pension trouble

Our view : Washington must find ways to help companies keep their pension promises

October 28, 2008

While millions of Americans agonize over retirement investments in stocks that have dropped 40 percent or more over the past year, workers with seemingly safer defined-benefit pensions promised by their employers also have growing reason to be concerned. More and more companies are falling behind in the investments needed to keep those pension promises, and more and more are considering the option of terminating their pension programs to save money.

Congressional action is needed to help preserve employees' pensions by changing rules to allow companies to offer plans that are easier to fund. Otherwise, a grim erosion in traditional plans is likely to accelerate. In 2004, about 20.6 million workers participated in traditional retirement plans, down from 30.1 million in 1980, according to the Employee Benefit Research Institute. Many companies have replaced their traditional plans with defined-contribution plans, in which they match their workers' contributions to 401(k) market investments. There is no promise of retirement income with defined contributions.

The costs for corporations to fund traditional pensions in the face of plunging market values are awesome. Last week, Lockheed Martin Corp., the Maryland-based defense giant, cut its earnings forecast, blaming a 25 percent drop in retirement investments this year. Boeing Co. estimated its pension fund was down 20 percent this year, likely forcing it to cough up $100 million more to meet its obligations. Standard & Poor's 500 companies started this year with $63 billion more in pension assets than they needed to meet future payments, but after the market plunge, they are expected to end the year underfunded by more than $200 billion.

Failing corporations may have to turn their pension plans over to the government's Pension Benefit Guaranty Corp., which is responsible for backing up benefits for 44 million Americans. But the value of its $68 billion investment portfolio fell by $2.2 billion through August, and experts worry that the agency will be swamped by claims if a corporate giant such as General Motors declares bankruptcy.

This fraying piece of America's social safety net is in urgent need of repair. Finding innovative ways to help companies keep retirement promises should be high on the agenda of the next president.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.