United Airlines screwed its employees out of their pensions. One of them, Ben Brice, expected to be getting $12,000 a month. After the company’s bankruptcy court ruling earlier this month, he’ll be lucky to get $2,000. This wasn’t the first and it won’t be the last time U.S. employees will have their retirement savings snatched away from them. The federal government is likely to do the same thing. In fact, they’ve been pretty much telling us they are going to do it. But nobody is listening.
The United pension default was the largest in U.S. history. Add it to the list of other thefts in other industries – steel and retail, to name two – and you have a trend that will steal hundreds of billions of dollars from American workers. The federal Pension Benefit Guaranty Corp. (PBGC), which insures traditional pension plans, says this trend is putting “severe stress” on the U.S. pension system. The PBGC, which is maintained by corporate premiums, has moved from a $10 billion surplus six and seven years ago to a $23 billion deficit in its single-employer insurance program.
According to USA Today, the agency had “$39 billion in assets and $62 billion in long-term liabilities. At the same time, the PBGC estimates that under-funding in the pension system has reached a record $450 billion, with auto, airline, and retail industries at most risk.” Bradley Belt, executive director of the PBGC, admits that the agency does not have “the ability over the long run to honor all the obligations we’ve taken on.” Once again, the wealth stealers are warning us… but no one is listening.
According to Bradley, there are only three possible “solutions” to the current crisis:
1. Corporations will have to start kicking in substantially higher premiums just to pay off current obligations.
2. The U.S. government will have to come in and bail the system out.
3. Pension funds will be reduced.
All three solutions are forms of thievery. The money that was paid into the system should have been enough to take care of the payouts. But something went awry. The popular explanation is that the recent rapid decline in pension funding is the result of a combination of an eroding stock market coupled with low interest rates. (Lower interest rates make long-term obligations seem larger.)
But there are other factors at play too, such as globalization and airline deregulation. Why aren’t people screaming? Maybe because it didn’t happen to them. “Surely,” we think, “there must have been something wrong with the United program to begin with. My pension is a good one. It can’t happen to me.”
Or maybe because they expect the government to save the day. But it didn’t do so with the United problem. All it did was give permission to United to screw its employees. And there is every indication that’s what will happen in the future, as other private pension funds begin to crumble and eventually collapse. What’s the solution? At ETR, it’s always the same answer: You’ve got to take care of yourself.
Begin by assuming that your company’s pension plan is in danger of default. Don’t bother to find out if it actually is, just make the assumption. If you do, you’ll probably take the following actions: If you have a traditional, defined-benefit corporate pension plan, assume that it will eventually go bust.
That means you will re-estimate your anticipated retirement income based solely on the income you’ll get from money that is neither in the Social Security system nor in any corporate pension program. If your company offers a choice, get into a plan – such as a 401(k) – in which employees make contributions with a possible company match. Consider supporting legislation that tightens pension system funding rules. Accept the fact that you may not be able to retire when you want to.
Don’t rely on your stock savings, unless they are considerable. Develop a second or third stream of income now, either by developing a financially valued skill or by turning a hobby or special interest into a business. You can get all the help you need to develop extra income by investing in any of Agora Learning Institute’s career-change programs, including ETR’s direct marketing and Internet programs. The PBGC has taken over 291 pension plans in the steel and metals industry since 1975.
It estimates that it faces about $40 billion in liabilities in the manufacturing sector and another $33 billion in airlines and other transportation companies, telecom, and utilities. “It will affect everybody who has a defined-benefit plan,” says Rania Sedhom, a New York lawyer who specializes in employee benefits. Of course, it’s these same officials and experts who are admitting to how bad things are, that are telling us there is “no need to panic.” But that’s their job, isn’t it? Maintaining the public’s confidence in their programs.[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]