more for General and FDJ2...
Top Of The News
The Coming Retirement Crisis
Dan Ackman, 06.18.04, 9:12 AM ET
NEW YORK - Traditional pension plans are increasingly underfunded; on the other hand, most people don't have pensions at all. All this could amount to a slow motion crisis as baby boomers head into retirement.
The
Pension Benefit Guaranty Corp. reported June 17 that companies with underfunded pension plans reported a total shortfall of $278.6 billion in their latest round of filings. The agency noted that the figure was down slightly from the $305.9 billion reported last year, but up dramatically from the $18.4 billion shortfall reported as recently as 1999. The big growth in funding shortfalls took place between 2000 and 2002, coincident with the big drop in share prices.
This report may be alarming to the agency, and ultimately the U.S. Treasury, which backs the pensions, and to retirees who figure to benefit from them. But more alarming is the fact that most people don't have traditional pensions at all; and the ratio of active to inactive workers in the plans that do exist has fallen to roughly 1-to-1, down from more than 3.5-to-1 in 1980, according to the PBGC.
More From Dan Ackman Underfunded plans had $641.8 billion in assets to cover $920.3 billion in liabilities, for an average funded ratio of less than 70%, the PBGC said. The agency's report covers only companies with more than $50 million in underfunded pension liabilities. If underfunding in all insured pension plans were included, the picture would look even worse. Meanwhile, the PBGC itself has been suffering substantial losses in its own assets.
Significant underfunding continues to exist in the airline and steel industries. In the airline sector, 11 companies reported a total of $31 billion in pension underfunding in plans covering 444,000 participants. In the steel industry, seven companies reported a total of $6 billion in pension underfunding in plans covering 213,000 participants.
Since PBGC's inception in 1974, these two sectors have accounted for more than 70% of the claims against the pension insurance program while representing less than 5% of insured participants. The woes apparently stem from the fact that the steel industry has been in a long-term decline: In the 1950s,
U.S. Steel alone employed 340,000 workers, more than twice what the entire industry employs today. Airlines, whose industry is on the rise, if not as persistently as it once was, suffer from a boom-and-bust tendency, as witnessed by the recent troubles of
United Airlines parent
UAL (nyse:
UAL -
news -
people ) and
Delta Air Lines (nyse:
DAL -
news -
people ).
But retirees in these industries have guaranteed pensions. That's not the case for most workers. In a recent report, the PBGC said there were 44 million workers covered by its guaranties. That's less than one-third of the U.S. workforce.
Among older households--those headed by people 47 to 64--fewer than half have defined pensions, down from two-thirds 20 years ago, according to research by New York University economist Edward Wolff. The advent of self-managed pension plans such as 401(k)s will pick up some of the slack. But Wolff says that more than 40% of households headed by someone between the ages of 47 and 64 will not be able to replace even half of their retirement income once they stop working and that nearly 20% will have incomes below the poverty level.
"[By] 1998, every group of near-retirees, except those at the very top, lost ground compared with the counterparts in 1983," Wolff says. "The contraction of traditional defined benefit pension plans and their replacement by defined contribution plans appears to have helped rich, older Americans but hurt a large group of lower-income Americans." The 401(k)s, he says, are not making up for the demise of traditional plans, whether fully funded or, as is increasingly the case, underfunded.
