Ravaged Retirement: Benefits Dwindle and Congress Scrambles to Keep Up

Retirement benefits are in serious danger. Many retirees are losing their pensions and retirement health benefits while Congress’ safety net is wearing thin.

Many industrial companies and major airlines are filing for bankruptcy or going out of business, and retirees’ promised benefits are often the casualty.

Pensions

Since 1974, companies have been required by federal law to pay the pensions that they promise. But when companies go bankrupt or default, a federal agency that insures these corporate pension plans, called the Pension Benefit Guaranty Corporation (PBGC), covers a portion or even the full amount of the promised pension benefit.

But the PBGC has a huge deficit, reported at $11.2 billion in 2003 and expected to be even larger in 2004. Lawmakers worry that the PBGC won’t be able to withstand the accumulating claims, which they attribute to financial problems in the airline industry and to a general lack of corporate responsibility. To read more about the PBGC deficit, click here.

Airline woes

Major airlines are struggling to keep their heads above water as fuel costs skyrocket. And they are unable to raise ticket prices because of competition from discount airlines like JetBlue and Song. As large airlines struggle financially, even high-paid retirees like commercial airline pilots feel the pinch.

When a corporation is unable to pay its promised pensions, the PBGC can fully cover only those workers who retire at age 65 and earn pensions of up to $45,000 a year. These limits, which were set by Congress, hurt pilots, who are required by law to retire at age 60 and typically retire with pensions of more than $100,000 per year.

When the PBGC has to step in, workers with large pensions, like pilots, will get only a small portion of what they were promised. Many say that this system punishes those who are financially successful in their careers.

Retirement health benefits

Many retirees rely on health insurance provided by their former employers, but such benefits may soon be a thing of the past. More and more large corporations are canceling retiree health plans due to the rising costs of health care.

During the first week of October 2004, US Airways and Delta Airlines announced that they would not provide company-paid health benefits for future retirees. They are also cutting employees sick time and vacation time and slashing future pension benefits.

And this isn’t happening in the airline industry alone. In the last two years, 23 percent of the nation’s largest companies have reduced or removed health care benefits for retirees.

There is no equivalent to the PBGC for retirement health benefits. If retirees lose their health coverage, they must rely on Medicare to cover health costs.

Possible legislation

On October 7, 2004, Representative George Miller (D-Ca) introduced the Pension Fairness Act in the House.

The bill would prohibit corporations from making payments to executives’ special pension accounts while underfunding pensions for common workers.

This practice is going on throughout corporate America. According to The Wall Street Journal, Delta Airlines is one example. The company has created special bankruptcy-proof pensions for its top management while simultaneously underfunding its regular pension plan by $4.9 billion. In addition, Delta has threatened to file for bankruptcy, which would require the PBGC to pay its regular pensions.

In their defense, corporations claim that they must create special pension plans in order to hang on to their brightest and best executives.

Lawmakers will consider the matter in the upcoming 109th Congress.

What do you think?

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Article Posted on: 10/16/2004