11/11/2011 3:54 PM ET|
Has your retirement been stolen?
If you're expecting a pension, it could end up being a lot smaller than you've been counting on. Plus: Some ways to check on your employer's pension plan.
If you're looking for a scary story to read, try "Retirement Heist." In it, Ellen Schultz, a Pulitzer Prize-winning reporter for The Wall Street Journal, describes how executives and accountants legally looted pension plans of billions of dollars. (See "Who killed private pensions?" for more from her book.)
To be sure, the Employee Retirement Income Safety Act of 1974 made clear that pension assets are to be managed solely for the benefit of participants. But Schultz describes how companies still managed to use the money to pay for severance packages and parachute payments to executives, among other things. Some companies simply sold pension assets for cash. Now pensions are collectively 20% underfunded.
Many employees are already aware of how this pension-starving affects them. In the book, Schultz writes about a Delta pilot who'd been receiving a pension of almost $2,000 a month, which fell to just $95 a month after the company went bankrupt. But others have yet to discover what's been going on behind the scenes. If you have a pension and have been planning to rely on it in retirement, listen closely to what she has to say.
Forbes: First, what are some companies that have cut employees' pensions and benefits?
Schultz: The companies I looked at included IBM, Verizon, AT&T, and I could keep going. Cooper Tire. General Motors. It's safe to say that most of the companies in the S&P 500 have done some version of this.
Forbes: And what did they do?
Schultz: Companies began cutting benefits because doing that enabled them to keep the money themselves, and it also boosted their earnings. Cutting harmed employees and retirees, but it boosted the pay and pensions of top executives.
During the '90s when accounting rules changed, this coincided with the trend toward awarding executives' pay that was based on performance. Let's say you reduce pensions by $100 million, that's essentially $100 million that gets added to profit. It's paper profit, but it affects earnings the same way as earnings you get from selling trucks. So executives were rewarded.
Forbes: Don't pension payments for thousands of workers dwarf the amount paid to executives?
Schultz: Not necessarily. Look at Massey Energy(Editors note: now part of Alpha Natural Resources). Last year, they had a huge Big Branch mining disaster. Dozens of miners were killed. The CEO was pushed out. He was given a retirement package that was worth $55 million. And the total payout for the coal miners, for black lung, traumatic workers' compensation (which means severe injury) and pensions and health care, that all came to $37 million, and that's for thousands of people. True, their costs will be ongoing, but it does put the magnitude into perspective.
Forbes: So what do employees do now?
Schultz: In many cases, the damage has been done. If they had a pension, it's already been cut or, in more extreme cases frozen, like at IBM. People who really have to worry are those at a company that's headed toward bankruptcy. That company is probably not contributing to the pension plan and is diverting assets elsewhere. If the plan is very underfunded, then they can lose some of their benefits. People most likely to lose the most are midlevel to upper level managers, I'm not talking about the executive ranks. People close to retirement who have already built up a pretty good pension, they might not get all of it. Your readers would probably be in this particular cohort.
The maximum amount paid out by the PBGC -- the Pension Benefit Guaranty Corp., a federal insurer that takes over failed pensions -- is $54,000 a year in 2011. But the amount can be reduced significantly if the plan is underfunded and because of quirks in the rules. If a person is expecting a pension of $4,000 a month or so, he should keep his eye on the company and make sure the plan's funded.
Forbes: How do people do that?
Schultz: They get an annual disclosure document, though this is often a year out of date.
Forbes: What about people at small and midsized companies, are they in the clear?
Schultz: Oh, they have to worry. Especially when you get down to smaller companies, there's more temptation at that level for the plan to be managed more as a tax shelter. You obviously want to make sure the plan has filed the correct documents with the IRS, and you want to make sure it's being funded adequately. The only surefire way is to look at something called a 5500 form. The downside is you can only get it when it's a year and a half out of date. Your company might be starving the pension, and you won't know until it's a bit late in the game. You can get these online at a website called FreeERISA.com (registration required). Look up your company's 5500, which will show the assets and the liabilities.
You can also get an idea of how much pension the company owes by looking at the 10(k), the SEC filings available at sec.gov. They'll mention the pension obligations and how much money is in the plan. But it's important to understand that they might look underfunded when in fact they're well-funded, because the figures usually include executive benefits, which aren't funded.
Forbes: What about government employees, or teachers, cops and firemen?
Schultz: There's been a bit of hysteria over the public plans. For the most part, the benefits aren't as rich as they've been characterized. Most are fairly realistic, and the numbers sometimes look larger than they really are because they include automatic forced retirement savings, for example. The bottom line is that, with some well-publicized exceptions, a lot of these plans aren't as generous people think they are and aren't as underfunded as people think they are.
It's unlikely that public employees will be forced to forfeit what they've earned, so if a person's earned $2,000 a month in retirement, that's probably not going to be taken away. But they may see their benefits reduced going forward. There will also be a big push to curtail retiree health benefits, so both public and private employees need to be saving extra for that. There are a lot of things you can't count on anymore.
Forbes: If someone has a question about their pension, who can they call?
Schultz:The Pension Rights Center in Washington can refer people to a lot of resources. There really aren't too many others that a person could go to. If they're in a union, their union really ought to be on the ball and be able to tell them how healthy their plan is and explain the benefits. There are also some nascent groups including the National Retiree Legislative Network, a fairly new group of people who are mostly retired salaried managers and employees who banded together to compare notes, share concerns and lobby their congressmen to tighten some of these rules and protect them better.
Forbes: If your pension has been cut and you don't have enough money to retire, what can you do?
Schultz: Well, you'll probably have to continue working longer. You'll have to save more, which will be difficult. Contrary to popular perception, salaries tend to not rise after the 40s, when adjusted for inflation. It's difficult, especially if you end up losing your job. You could be in quite a tight spot. What I have seen in a lot of these cases is that people end up selling their homes. Really, the only safety blanket that you have is Social Security, which is also under assault. The same retirement industry that dismantled pensions would love to dismantle that program and have a crack at the assets.
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ImaSwimDude,that bites. A similiar thing happened to my dad, although, he was in his late 40's. Lost his pension after 20 something years working there. He recovered and went on a massive savings/investment program for the next 15 years before taking early retirement at 62.
I remembered his advice to me. Son, don't count on a pension. Do '401k' and 'IRA's.
But the most important thing he said to me was don't be married to you company. Despite being an employee, consider yourself an independent contractor that can get your notice at any time.
So... I keep 3-6 months of bare bones living expenses in an emergency fund in case I am laid off. And I was back in 2006. 3-6 months, any severence and unemployment Insurance should allow anyone to last at least a year in case of a layoff without having to work and pull from your investments.
The saige advice of the more 'conservative' money managers of old really rings true in this day and age. Live within your means, avoid debt and diversify your investments. Save 10-20% of your income. More if you can.
The bottom line is you should not trust corporations or the government for your retirement. Too much greed, corruption.
Become educated on investing yourself. You don't have to be a stock or commodities trader but know how stocks, bonds, money market, commodites work. Find a 'quality' mutual fund company and diversify your investments. The basics are not complex.
I hope social security is still there for all of us, but it most likely will be in some abreviated form. Sucks. I know. But it's reality. Become as independent as you can be and as you approach retirement, get out of debt and save as much as you possibly can. The kids and grandkids will have to learn to fend for themselves.
Personally, I'm rushing to get my house paid off within the next couple of years so that I can pump in all the savings into a diversified mutual fund portfolio. That will put me at about the 50% of income (both wife and I) that we will be saving as we approach 60. If social security is not there for us, then we'll have our savings to live on.
Also very important is keeping your health intact. Otherwise, your retirement will be sobataged. I advocate for people to go the extreme route of health and fitness and eat only natural foods: mostly fruts and veggies with organic, grass fed meats. Stay away from sugar, caffiene, alcohol and refined grains. It makes a huge difference in your health and what you pay for medications.
My dad is a health/fitness advocate to the extreme. His turns 70 next year and takes no prescription meds, never goes to the doc (except for sport's injuries) and still does not need eye glasses. Yet, all his buddies spend tons of $ on prescriptions, health insurance and doctor visits. Studies show you just flat don't get cancer, heart disease or other dibilitating diseases when you put your health first.
So the fatcats of the companies screw us all with their golden parachutes.
Greed and more greed and our government sucks up to these fatcats.
I hope all those rich ceos never sleep another good night's sleep doing this to all their employees and not caring obviously.
These ceos and fund mgrs that use our money in 401k's and such are dispicable. Where are our gov't protections when they are needed? Dam politicians look the other way and enjoy the gravy train while the rest of us struggle.
i just cant believe more people arent totally furious about their pensions being robbed or even the way our governemnt mismanaged our social security system....you ask me..these wall street protesters are on the wrong door steps//..it should be washington.. and they should be screaming at the tops of there lungs....when you work your intire life for a company.and then you find out your company took your pension..you just dont say OH WELLL.. and let me add this...I dont blame obama totally...,He made some mistakes...but he also inherited a lot of this mess and i also dont put the full blame on bush either...he also made some awful mistakes and threw our nation into a war and in financial ruin from a once balanced budget by clinton...but of course clintion started the subprime morgage fiasco which we are all experiencing the effects today in our economy..so i dont blame either the republicans or the democrats..I BLAME THEM ALL ....ESPECIALLLY CONGRESS FOR NOT WORKING WITH THE PRESIDENT AND KEEPING OUR NATION CONSTANTLY DIVIDED SO WE CAN NEVER MOVE FORWARD AND GET THINGS DONE AAAAND PLAYING POLITICS UNTIL THE PUBLIC HAS LOST ITS TRUST WITH WASHINGTON..
Most companies have gotten rid of pensions and went to 401K's. Folks are going to be in shock when they retire. Most people I know have no idea how much money they need when they retire and think Social Secuity will take care of most of what they need.
When my generation begins to retire your going to see two classes 1) the "rich" retired government workers and a small group of people living off the nest egg they saved their entire life; 2) a lot of poor people that worked for companies all their lives and didn't realize they needed to save.
I have known this for a few years already.
But I see that many others choose to blame undocumented workers for this terrible heist done by those future retirees trusted with their life's savings.
Lucky those who were able to withdraw 20 to 30% of their total 401K value, while those sob CEO's enjoy the great life after the mulimillion dollar bonuses granted to them by their bankrupt firms.
This has been the heist of the century, the citizens' pockets have been picked right before our very own eyes. It might all have started with Enron, remember? all those bankers who were bailed out by, and then worked with President Bush to later become top financial aids to President Obama.
I mean, after driving their banks into the pavement, they come to work for us...in the federal government? is that a big cow chip or what..
You racist, bigoted idiots always reveal your pathetic selves with ignorance and jealouy. Pathetic.
Better not ever return to Germany. They are looking for you.
"Retirement Heist" is a great book. I also liked "Age of Greed" by Jeff Maddrick. I have reached a point where I don't trust any corporate or government institutions. Pay no attention to the man behind the curtain.
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