The traditional pension systems that once guaranteed a retirement income until death are in sharp decline. The airlines are only the latest industry to begin dismantling their plans. Between 2001 and 2003, 16 steel companies terminated their pension plans, leaving 256,800 workers, retirees and dependents at the gates of the PBGC. Just last week, the PBGC announced it would take over the pension plan of Kaiser Aluminum.
The domino effect may be in full swing. As more company plans go under, the PBGC has had to steadily raise the premiums it charges to insure company pensions, from $1 an employee in 1975 to $8.50 10 years later, to a charge today of $19, plus a variable premium for troubled companies that can push per-employee costs to more than $60, said Sylvester Schieber, vice president of research and information for the consulting firm Watson Wyatt Worldwide.
It still has not been enough. PBGC Director Bradley D. Belt said last week that his agency's deficit for the fiscal year that ended Sept. 30 would eclipse the previous year's record $11.2 billion deficit. A slew of bankruptcies could leave taxpayers holding the bag.
"The longer-term solvency of the pension insurance program . . . is at risk," Belt told the Senate Commerce Committee.
Deficient as they are, those rising premiums are one of the factors pushing traditional pensions toward extinction, Schieber said. In 1978, there were 128,401 such pension plans covering nearly 41 percent of the private-sector workforce, according to the nonpartisan Employee Benefit Research Institute (EBRI). Now there are 26,000, covering just under 17 percent.
In their place have come 401(k)s and other defined contribution plans, where risk is shifted from employer to employee, and contributions are fixed but benefits are left to the markets to determine. The number of such plans has swelled to 840,301 from 314,592 in 1978. About 42 million workers participate in such plans, far more than ever enjoyed a traditional pension.
But with that shift has come uncertainty.
Last month, EBRI found, average 401(k) balances had grown by 17 percent since 1999, despite the shocks to the stock market that knocked total stock prices down by $7 trillion -- or 42 percent -- between 1999 and 2002.
But by the end of 2003, the account balances of experienced workers in their fifties -- the ones closest to retirement -- were 9.3 percent lower than they were four years before.
Meanwhile, savings rates have drifted downward, and the percentage of Americans who are saving has stagnated. An annual survey released by EBRI this spring found that 45 percent of all workers had total household assets, excluding the value of their homes, of less than $25,000.