Pension Failures Foil 6-Figure Retirements, Too

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Pension Failures Foil 6-Figure Retirements, Too

By JOHN LELAND

and MARY WILLIAMS WALSH

 

Published: October 5, 2004

 

om Paulsen worked for 36 years as a trucking executive, and when he

retired two years ago, he thought he had secured a comfortable life. He

had a 12-acre farm near Sacramento and a pension of $151,000 a year, his

payoff for years of working 70-hour weeks.

 

Then three months later his company, Consolidated Freightways, filed for

bankruptcy and the federal government took over its pension plan. Mr.

Paulsen's pension fell to $22,000. To pay his expenses, which include

$9,000 for health insurance, he has had to divide up the farm and offer

most of it for sale.

 

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Mr. Paulsen, 61, is just one of more than 500,000 Americans whose

pension plans have failed in the last three years and been taken over by

the federal government, leaving many without health insurance and some,

like Mr. Paulsen - high earners who retire early - with pensions much

lower than those they had counted on.

 

" The average person is not going to feel overly sorry for me, and I

don't expect it, " Mr. Paulsen said, acknowledging that he still has

investments and savings. " But I moved nine times for the company and

expected a lot more. There were a lot of sleepless nights. "

 

As major airlines and old-line industrial companies use bankruptcy to

stay alive, or simply go out of business, many workers are being thrown

into a federal safety net that does not always protect them.

 

Among those hard hit are commercial airline pilots, who by law cannot

fly passengers after they turn 60. Pilots typically retire with pensions

of $100,000 or more, based on their final salaries and years of service.

But the federal Pension Benefit Guaranty Corporation, the agency that

takes over failed pension funds, usually matches the payments only for

workers who retire at age 65 and earn pensions of up to $45,000 a year.

The limits are set by Congress.

 

People who retire early or earn more can feel singled out precisely for

their success. In the most recent count, in 1999, those people accounted

for 7 or 8 percent of those relying on the agency, but that percentage

is expected to rise when the retirees of the last few years are counted.

 

J. B. Cockrell, 63, retired from United Airlines in 2001 with a pension

of about $100,000. But in August the airline announced it was likely to

discontinue its pension plans for employees, following the lead of Pan

American World Airways and U.S. Airways. Mr. Cockrell fears what will

happen next.

 

" This is something my wife and I are relying on, " he said. If the

government takes over, he said, his pension might not even cover the

mortgage on his home.

 

" We have two children in college, " Mr. Cockrell said. " If we lose the

pension, we'll have to sell our home and move someplace less expensive. "

 

Workers or retirees can face tremendous uncertainty as their pension

plans teeter or fail. Because the rules are complicated, workers going

through a company bankruptcy often have little real sense of how

complete their insurance coverage will be. In some cases, the coverage

is linked to the amount in the dying pension fund, which companies often

do not disclose.

 

Thirty years ago, Congress approved legislation to ensure that when a

company promised a pension, it made good. Since 1974, companies have had

to fund pensions according to federal rules, and the government has

insured the benefits.

 

But tens of thousands of companies, many of them small businesses, have

exempted themselves from those requirements by terminating their pension

funds and offering other types of retirement benefits that are not so

heavily regulated. These benefits are not guaranteed.

 

And of the companies that still sponsor traditional pension plans,

hundreds have gone bankrupt and defaulted, including giants like

Bethlehem Steel and Polaroid.

 

The pension agency has now taken over company plans for one million

workers and retirees, and has been stretched to a deficit of $9.7

billion. As more pension plans fail, some retirees worry about the

security of even their insured incomes.