While Americans squabble over a theoretical retirement crisis that may or may not develop over the next half-century, a real retirement crisis is unfolding before us right now, and nobody’s doing a thing. It’s called our collapsing pension system.
The latest pension plan to collapse was the United Airlines plan, which the bankrupt airline dumped on the federal government’s pension guaranty corporation this week. At close to $4 billion, it was the largest pension-plan default in American history, but it’s had some close challengers of late. US Airways dumped its $3 billion pension plan on the federal government just last February. A wave of failing steel companies dumped their plans during 2002 and 2003, at a cost of billions. The federal insurer must pick up the defaulted plan’s obligations, but it frequently pays just a fraction of the retiree’s promised benefit. Millions of retirees have been left devastated by the defaults in the past four years. The federal guaranty agency itself, once blessed with a surplus, now has a deficit that’s doubled in the last year alone and now stands at more than $24 billion.
The cause of all the defaults is underfunding by companies — that is, paying too little into their plans to support future obligations. One reason is dislocation in the economy, as industries like steel and air travel suffer losses and bankruptcy, either because of global competition or, in the case of airlines, ill-considered deregulation. Another reason is a spate of overly optimistic investments during the boom of the 1990s. A third reason is simple greed: Companies divert funds from their pension plans, through accounting tricks both legal and illegal, to improve their bottom lines and line their executives’ pockets at workers’ expense.
A sizable sector of the economy is moving away from guaranteed pensions altogether. Instead, they’re offering their workers nothing, or investment plans that allow employees to put aside funds in portfolios of their own choosing, hoping their gambles pay off and they end up with a nest egg to retire on. It’s a variation on the plan President Bush is trying to sell as Social Security “reform,” where the risks are transferred from the employer, the federal government or society at large onto the individual. The percentage of the work force with the old-fashioned, defined-benefit pension plan has been halved to just 20% in the last quarter-century.
Western society took a great step forward in the first half of the 20th century when it came to the understanding that the suffering imposed by poverty was not only the individual’s misfortune but society’s — and society’s responsibility as well. It was an understanding that caring for the weakest among us is not just a matter of charity, but of justice.