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The sudden shift from annual pensions of a guaranteed amount for a lifetime to a lesser and uncertain amount for a limited period is taking its toll on workers. Robin Gilinger, 42, a United flight attendant for 14 years, sees a frightening financial picture. She has another 14 years to go before she can take early retirement. Under the old pension plan she would have received a monthly check of $2,184. Because of givebacks, that's down to $776--a poverty-level annual income of $9,312 by today's standards, even before inflation takes its toll over the coming years. And there is the distinct possibility it could be less than that. Her husband lost his pension in a corporate takeover.
Gilinger, who lives with her husband and 9-year-old daughter in Mount Laurel, N.J., is not planning on early retirement and certainly couldn't afford it in the current situation. But she has concerns reminiscent of Joy Whitehouse's experience. "It's scary. What if something happened to my husband or if I got disabled?" she asks. "Then I'm looking at nothing. Above all, what's frustrating is that we were told we were going to get our pension and we're not. The senior flight attendants, the ones who've worked 30 years, they're worried how they're going to survive." Each time the PBGC takes on another failed pension plan, it makes the pension-insurance program more expensive for the remaining businesses. That in turn prompts other companies to unload their plans. The PBGC receives no tax money. Its revenue comes from investment income and premiums that corporations pay on their insured workers. As a result, soundly managed companies with solid retirement plans are compelled to pick up the costs for plans in mismanaged companies as well as those that just want to unload their employee benefits. A proposal by the Bush Administration to overhaul the system, critics fear, would actually increase the likelihood that more companies will kill existing plans and that other companies considering establishment of a defined-benefit plan will choose a less expensive option. An analysis of 471 FORTUNE 1000 companies by Watson Wyatt Worldwide, a global consulting firm, concluded "healthy companies would see their total PBGC premiums increase 240% under the proposal, more than double the 113% increase for financially troubled employers."
Barring a reversal in government policies, the PBGC could require a multibillion-dollar taxpayer bailout. The last time that happened was during the 1980s and '90s, when another government insurer, the Federal Savings and Loan Insurance Corp., was unable to keep up with a thrift industry spinning out of control. The Federal Government eventually spent $124 billion. Unlike the FSLIC, which was backed by the U.S. government, the PBGC is not. That means an indifferent Congress could turn its back on the retirement crash. By the agency's estimate, that would translate into a 90% reduction in pensions it currently pays.
WHERE THE 401(K) FALLS SHORT