Monday, October 17, 2005

For many Americans, a vital safety net vanishes

R etired mechanic Randy Daly had two thoughts when Northwest Airlines declared bankruptcy: “I’m going to lose medical benefits for me and my wife,” he said. And, “If my pension gets turned over to the government, I’m going to lose some more money.”

Both are strong possibilities for the 61-year-old Apple Valley, Minn., resident, and together they would cost him about $1,300 of the $2,860 monthly benefit he just started collecting in April.

“I’m retired. You’d think you’d be safe, wouldn’t you?” Mr. Daly said. “But no, that’s not the way it works. You put 40 years into a place, and you get promises and then, whoops, they change their mind.”

As Northwest’s 71,000 employees and retirees await word on the fate of their pensions — and their retirement years — they have a lot of company.

Across thousands of workplaces, the status of many employee pensions now sits somewhere between threatened and dead and gone.

A country where private industry counted 114,000 pension plans a generation ago now has only 31,000 — and the decline is accelerating.

Among the country’s Fortune 1,000 companies, the number of plans frozen or terminated jumped from 45 in 2003 to 71 last year, according to Watson Wyatt Worldwide, a District-based employee-benefits consultant. Another 25 companies closed their pensions to new hires.

The result is that older Americans are staring at the least-secure retirement in at least three generations. Many can expect to outlive their money.

The biggest byproduct of the new order is fear.

Even Americans who are already retired worry about their children, said Dennis Gerhardstein, programs director of the Minnesota Senior Federation. “They tell me, ‘We have our pensions. But the boomer generation thought they had a solid agreement, and now someone’s changing the rules on them midstream.’”

Boomers see the new employer message as, “Good luck to you. Hope you don’t get sick. Hope you don’t get fired. Hope you save some money,” Mr. Gerhardstein said. “That’s the anxiety I see in people’s eyes at retirement seminars these days.”

The end of the pension is coming quickly — and in all kinds of ways. IBM converted its plan to something else. Motorola closed its plan to new employees. Northwest Airlines will either dump its pensions in bankruptcy or freeze them and replace them with 401(k) savings accounts.

The effect on workers ranges from nuisance to financial catastrophe. For young people, it means they are on their own to plan and save — two things Americans don’t do well. For many counting on their pension to finance their later years, it means extra years of working.

Some refuse to give up on pension promises.

Teamster Dave Reed and 20 other yardmen, mill workers and truck drivers at Rum River Lumber Co. in Coon Rapids, Minn., walked off their jobs last spring rather than switch to a 401(k) plan.

Mr. Reed, 57, would be celebrating 18 years at Rum River this month, where he filled orders for home builders. Instead, he is on a picket line at its front door. And the company replaced all the striking workers, so Mr. Reed is out of a job.

He figures that swapping plans, as his employer wanted, would cut his monthly pension checks from $3,000 to about $600.

“What surprised me, after all those years in a union, is I didn’t think it would be this easy to do what they’re doing to us,” Mr. Reed said.

Businesses say there’s nothing nefarious going on, just that the cost of pensions is outstripping the cost of doing business.

“It’s very much a business decision,” said Philip Berglin, chief financial officer at family-owned Rum River. The pension is underfunded by more than $500,000.

If the fund’s problems continue, the company’s liability could bankrupt it, Mr. Berglin said, “and that would mean the loss of everyone’s job.”

The other economic reality businesses say: If their competitor doesn’t offer a pension, how can they afford to offer one?

That is Northwest Airlines’ argument as it faces off with low-cost carriers that don’t have employee pension plans. United Airlines and US Airways already have defaulted on their pensions.

• Distributed by Scripps Howard News Service

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