Washington – Last week’s court decision permitting United Airlines’ parent to dump its pensions on the federal government is part of a sweeping trend that could make the nation’s employers more competitive, but at a cost of leaving workers and their families bearing big risks.
In a nutshell, a broadening swath of corporate America is retreating successfully from the safety-net business and wants you to take its place.
The decision by a Chicago bankruptcy court focused on the problems of a company strapped with $6.6 billion in pension costs. But the court’s solution is one that even healthy companies are seeking to copy in one fashion or another.
“People like to think of employers as social welfare organizations, but they’re not,” said Sylvester Scheiber, a partner with the financial consulting company of Watson-Wyatt and a member of President Bush’s 2001 Social Security Commission. “In an increasingly competitive world, they don’t have room to do much else but focus on the competition.”
That means working families are left largely on their own.
Most U.S. companies have done by other means much of what United did by defaulting on its pension obligations.
Employers of almost 30 percent of the nation’s private sector workforce no longer offer the kind of pension where responsibility for managing retirement money and delivering benefits rests with the company. These companies make contributions to retirement savings, perhaps through tax-deferred 401(k) accounts, but it’s up to individuals to manage the money and suffer the shortfalls.
Employers of half of the workforce offer no retirement help whatsoever. Only the remaining 20 percent of workers still have traditional pensions, a fraction that has fallen by half in the past 25 years, according to U.S. Labor Department statistics and estimates by Boston College’s Center for Retirement Research.
Such an approach appears to be cut from the same cloth as the president’s “ownership society” agenda. A key element of that is his proposal to let most Americans divert a portion of their Social Security payroll taxes into individual investment accounts in exchange for a reduction in traditional benefits. In the corporate and administration plans, individuals would bear bigger responsibilities and could reap bigger rewards for making good financial decisions.
Some analysts find that prospect dubious. “We’re moving back to a world that existed in the early 20th century when only an elite group of companies provided pensions and some degree of career employment,” said Sanford Jacoby, a University of California at Los Angeles economist and author of “Modern Manors,” a study of employer-provided safety nets.
The only reasons companies can drop pensions, Jacoby said, is because “they have the fig leaf of 401(k)s.”
In the end, said Stanford economist John B. Shoven, “risk is a sort of irreducible thing. It stays in an economy and has to be borne by somebody. So it keeps getting tossed around like a hot potato.”
