As I See It: Listen Up, Kids

by Victor Rozek

Here's something to ponder: People born today have a 50/50 chance of living to be 100. Amazing, isn't it? But like all statistics, this one is bloodless, comprised of nothing more substantial than numbers. It doesn't tell us anything about the people who may live for a century. It doesn't tell us how they will fund their longevity. It doesn't speak to the quality of their lives. In short, it doesn't tell us whether living to be 100 will be a blessing or a curse.

If you should live to be 100 and retire at 65, you will have to support yourself another 35 years without a salary. Maintaining a modest middle-class lifestyle at $40,000 a year would require an additional $1,400,000.

Living to 100 wouldn't be much of a blessing for Jerry Fallos, who retired after 35 years of bone-crushing labor in a Minnesota steel mining plant. According to the Minneapolis Star Tribune, Fallos, a member of the United Steel Workers union, was entitled by contractual obligation to a full pension of $2,400 per month. But his company filed for bankruptcy (one of several corporate strategies for dumping pension obligations), and its liabilities were assumed by the Pension Benefit Guaranty Corp (PBGC), an entity created by the government to be the pension insurer of last resort.

But opportunistic companies are now viewing the PBGC not as an emergency safety net, but as a get-out-of-paying-pensions-free card. Steel mills, airlines, and other poorly managed entities declare bankruptcy, dump their pension obligations, reorganize, and go right on doing business under a new name. General Motors' spinoff part supplier, Delphi, is the latest; and GM may be next. Workers at Delphi who previously made $27 an hour are now being asked to accept as little as $10 an hour.

I suspect that programmers who make roughly $27 per hour would find it challenging to work for $10 per hour.

But a bankrupt company makes a far more attractive acquisition target if it's no longer burdened with those annoying long-term obligations. In fiscal 2004 alone, PBGC assumed the pension plans of 192 failed companies, up from 155 the year before. And that's how PBGC became responsible for $62.3 billion in pensions with only $39 billion in assets.

Even if it was fully funded, however, PBGC doesn't cover health care benefits, so the end result for Fallos was that his pension shrank by $1,000 per month. "It's three years now, and that's $36,000," laments Fallos, who wonders how in the world he will survive on $46 a day.

I relate this story because the sorry reality is that if your company has a pension plan, PBGC may be your best bet to ever see a penny of it. And that's not saying much since PBGC is already broke.

Bankruptcy, you see, is not the only strategy corporations use to bilk their retiring employees.

Another popular scheme is adding years of service to the eligibility requirements. What you would have normally received after, say, 20 years of service suddenly requires 40 years to achieve. Good luck. But in the unlikely event you survive 40 years with the same company, you may find that your pension plan was deliberately underfunded. You can thank your government for changing the rules allowing corporations to disregard their funding commitments.

Just five years ago, pension funds were underfunded by a substantial but manageable $20 billion. Now, the shortfall is $340 billion.

But my favorite practice is simply fleecing the pensioner at the time of payout. According to the Star Tribune, research ordered by the Senate Special Committee on Aging in 1997 found that 14 percent of pensioners were being underpaid. But that was eight years ago. The problems are now so rampant that a whole new profession is sprouting to address the problem of the pension that mysteriously shrinks at payout time. "Personal retirement actuaries" will, for a fee, check the math that companies use when they calculate how much you get.

Joseph Gaworski is a personal retirement actuary in St. Paul and, according to the Star Tribune, these are the kinds of errors he finds: "In one case, the employer used the wrong interest rate in converting a lifelong pension to a single, lump-sum payout. In another case, the employer used the wrong mortality table. One employer got his client's date of employment wrong; another forgot to include bonuses in the income that was the basis for the pension. In a recent case, a lump-sum payout jumped almost $30,000, to $165,000. The problem there was that his client's pension got lost in a maze of corporate acquisitions and restructurings."

Mistakes, of course, happen. Except, Gaworski noticed that over 90 percent of the mistakes he uncovers favor the employer. Whodathunkit?

Corporations would be delighted to have pensions join dinosaurs on the extinction list. Indeed, only 34 percent of the labor force is still covered by traditional "defined benefit" plans, down from 53 percent. Pushing pensions toward the cliff are so-called "defined contribution" plans like 401(k) accounts, which require a much smaller investment from employers, and a much greater responsibility from employees.

"The grand experiment," as William Greider calls it, "was launched nearly twenty-five years ago by Ronald Reagan." But a quarter of a century later, the limitations of the every-investor-for-himself approach are becoming evident. "Of the 48 million families who hold one or more of the accounts," writes Greider, "the median value of their savings is $27,000." For workers 55 to 64 years of age, the median value is about double, but "that's only enough to buy an annuity that would pay $398 a month, far short of middle-class living standards."

The problem, according to Greider, is three-fold. People misjudge how much they need to save to sustain their lifestyle in retirement; or, they can't afford to put aside enough money; or, they bet wrong and get wiped out in the market. The "romanticized thrill of individual risk-taking" so rhapsodized by politicians whose pensions are secure, has, for many, worn thin.

Saving, of course, is key, but saving, like pensions, is also becoming imperiled.

To fund their own retirement, workers would realistically have to set aside about 15 percent of their income annually.

But savings, notes Greider, are in "epic decline." Since 1982, when "personal savings peaked at $480 billion," they have declined by nearly 80 percent.

The absence of savings, the demise of pensions, and rising inflation mark the convergence of the perfect poverty storm heading with frightening speed towards tens of millions of people who are nearing retirement age. And, with continuing downward pressure on wages, younger workers will have even less opportunity to begin saving for their own futures.

But if dwindling savings and shrinking pensions are like an infectious national malady, the vector is runaway healthcare costs.

Healthcare has become unaffordable for both individuals and corporations. It contributes to our personal inability to save as well as the business community's inability to provide long-term medical care through the pension system.

A number of high-wage industries have begun relocating to Canada, not because wages are substantially lower, but because Canada has a workable national healthcare system. Our current system is so dysfunctional that nearly 50 million people have no medical insurance at all, and of those who filed for bankruptcy citing medical reasons, the majority actually had insurance but it wasn't nearly enough.

As the hurricanes in New Orleans clearly teach us, policies that disregard the common good eventually create problems of an unimaginable scale. The failure to invest in levee maintenance and the gutting of emergency response agencies resulted in infinitely greater costs. The economic hurricane is already forming. Ignoring pensions, healthcare, savings, and the general erosion of the middle class will sooner or later create a Category 5 economic maelstrom that may drag down the entire nation.

A leader of a very poor country once admonished the United Nations Assembly: "You will either share your wealth with us, or we will share our poverty with you."

That is the choice now facing our own country. We will either invest the nation's wealth on behalf of its working people, or their misfortune will touch us all as our infrastructure collapses under the weight of their need. There's nothing mysterious about the solutions. It's just a matter of priorities.