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When Bill Norwood started flying for United Airlines in 1965, he knew that at age 60, he would be grounded in retirement. But Norwood, now 70, never imagined that his pension would be significantly reduced from what he was promised when he joined the airline.
During the last year Norwood was employed, his salary was $200,000. The Mesa, Arizona, resident was due to receive an $84,500 pension, but he now expects to receive $65,000 since UAL Corp. filed for bankruptcy and the company’s pension plan was turned over to the Pension Benefit Guaranty Corp. (PBGC), a federal agency that insures private-sector defined benefit plans.
“I really think this is unfair,” says Norwood, who piloted domestic flights at United for 31 years. “These are things we worked and sacrificed for, and plans had been made. Once you do the work and you retire, your pension should be guaranteed. It was shocking that they could go into bankruptcy court and do this.”
Stories like Norwood’s have been unfolding across corporate America. Led by companies in the steel and airline sectors, cash-strapped corporations have used bankruptcy courts to dump their pension responsibilities onto the PBGC, triggering a $22.8 billion deficit for the agency in fiscal 2005. In some cases, when the PBGC takes over a plan, benefits are reduced because of payment limits imposed by Congress.
But it’s not just bankruptcy that is eroding retirement benefits. Companies have been gradually shifting away from traditional pension plans, which now cover about 44 million workers and retirees. There were more than 13,000 such plans in place in 2004, less than a third of the estimated 114,000 in 1985, according to the Employee Benefits Research Institute in Washington, D.C.
“There has definitely been a trend of companies shifting the burden of retirement from their own plans onto the shoulders of individuals,” says Karen Friedman, policy director of the Pension Rights Center in Washington, D.C. Companies with frozen pension plans have opted to transition to defined contribution plans, commonly called 401(k) plans, in which workers and employers contribute to individual accounts that the worker is responsible for managing.
William Spriggs, chairman of the economics department at Howard University and a member of the BLACK ENTERPRISE Board of Economists, says reducing pension benefits is a double whammy for some workers because a number of unions had previously agreed to wage concessions in favor of greater retirement benefits.
WHAT SHOULD WORKERS DO?
Guarding against wealth erosion is difficult. “Workers should try to protect their pensions like the transportation workers did in the New York City transit strike,” Spriggs says, but “the reality is that you may end up without the pension you thought you were going to get.”
As workers and retirees are forced to rely more heavily on their savings and investments rather than their pensions in retirement, Wayne W. Williams, a Philadelphia-based financial planner, suggests that they match company contributions to 401(k) plans and preferably save up to the maximum limits. Additionally, workers approaching retirement age should begin to reduce their debt.
Williams also cautions people
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