United Airlines Chief Financial Officer Jake Brace speaks with reporters in Chicago, May 10, 2005, after a federal bankruptcy judge approved United Airlines' plan to terminate its employees' pension plans. Current and former United employees protest the ruling in the background. (AP/M. Spencer Green)
When a bankruptcy court allowed United Airlines to default on its pension plans -- and gave the federal government the responsibility for about $7 billion in payments to 134,000 people -- it was widely viewed as a wake-up call. Many Americans worried whether they could be next, and whether the government could afford to protect them. Good questions with less-than-encouraging answers, reports correspondent Celeste Ford.
Retired United Airlines worker George Gardiner says airplanes were his life starting in high school and then Vietnam -- where he has a combat medal to show for it -- and then his first job in 1965 as a technician. After 16 years at Eastern, the company went bankrupt and Gardiner's pension was frozen at less than $300 per month. He then worked 12 years at United Airlines. Last week's court decision allowing United Airlines to dump its pension benefits could cost Gardiner one third of his current monthly pension of $870.
"I'm one of the lucky ones," says Gardiner. "I had a home to sell. I lost my wife two years ago, I don't have to look at her and feel I was a failure."
The United decision could trigger a domino effect. That's one reason the federal insurance agency which backs traditional pensions is heading toward a crisis.
"The status quo is broken," says Bradley Belt, executive director of Pension Benefit Guaranty Corporation. "It's the rules in place that have led us to this point.
"We need to stop the hemorrhaging of this system," says Belt. "We need to stop digging this hole and then we need to fill it in a reasonable and measured way."
Right now pensions are insured up to a cap of $45,000 per year, per retiree, with the money coming from premiums paid by companies. The Bush administration wants to increase those premiums, make the process more transparent -- allowing employees to know what's going on -- and tighten the funding rules so that companies contribute more. The new funding rules would take into account annual changes in interest rates and the stock market. Companies say they can't do business that way.
Companies know and they expect that they are going to have to put more and more money into their pension plans," says James Klein, the president of American Benefits Council. "What they do have a problem with are proposed rules changes that make it impossible for companies to plan for what their costs will be two years from now, five years from, seven years from now."
The American Benefits Council, a corporate lobbying group, says the administration's plan will drive healthy companies out of the insurance fund, making it even more unstable. The Center on Federal Financial Institutions, a think tank, says a compromise won't be easy for the same reasons a broken system managed to last this long.
"This is an issue where corporations and unions march in hand-in-hand and say don't raise our premiums," says Douglas Elliott, president of the Center on Federal Institutions. Don't make rules tougher and shift risk away from them and toward the federal insurance agency."
Take the United Airlines pension default, combine it with the Social Security debate, and what you get is a lot of anxiety over retirement benefits.
One thing is clear, when it comes to savings, employees should expect to assume more responsibility and risk.
An angry workforce has watched the number of pensions with guaranteed monthly benefits, known as defined benefit plans, nose-dive by three quarters since the 1980s. Companies are turning to an often overwhelming variety of alternatives, most driven by employee contributions. These defined contribution plans offer no guarantee of what a retiree can expect.
"You really have to have your eyes open and know what's happening," says Terry Monahan, an occupational safety expert. "Most of us won't be minding the store. We'll invest and forget about it."
Monahan has a plan similar to a 401K. His retirement account travels with him if he changes jobs. So far, Monahan has $170,000 set aside, much more than the average worker. Yet Monahan is uncomfortable with the decision making and the uncertainty and would prefer a traditional pension.
"I'm worried about our future," says Monahan. "I have a wife and four children, enormous financial responsibility."
Workers concerned about their own pensions could be forced to salvage the pensions of others. The problems at the federal insurance program are being compared to the savings and loan crisis of the 1980's and no one is ruling out a taxpayer bailout to help workers like George Gardiner.
"Seeing as we take care of the rest of the world, yes I think so," says the retired United Airlines worker.
"This is not my fault. I didn't choose to do this. I didn't make these decisions. "