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Moderator: Welcome to Viewpoint! Today Director of Federal Affairs David Certner and National Legislative Council member Leroy "Gil" Gilbertson discuss ways to strengthen pensions and savings. Thank you for joining us.

David Certner and LeRoy Gilbertson: Thanks for having David and me on today. We look forward to an interesting discussion.

Gil Gilbertson

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Minneapolis MN: Isn't the current wave of pension terminations and replacements with the 401(k) type plans merely a device to shift investment risk from the employer to the employee?

David Certner and LeRoy Gilbertson: That may be an oversimplification, but there is certainly a shift of investment risk to the employee with the use by the employer of a 401(k) type plan as opposed to a defined benefit plan.

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Bradenton, Fla.: How can a company change the pension of an employee, when the rules and regulations regarding that pension were agreed upon at the time the employee was hired?

David Certner and LeRoy Gilbertson: ERISA only protects the benefits you have already earned. Those benefits can never be decreased. AARP fought in the courts for these rights in the case entitled Heinz v. Central States Pension Plan. However, ERISA permits an employer to change future benefits.

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Bethesda, Md.: I’m an older worker and I am concerned about the impact of cash balance plans on retirement. What is Congress doing to ensure I get the benefits promised by my employer when I started working years ago?

David Certner and LeRoy Gilbertson: Congress currently has a number of legislative proposals under consideration. These bills legitimize cash balance plans, but some include protections for older workers who are harmed by plans that convert to cash balance plan. AARP has been pushing hard for protections for older workers. Right now, the Senate bill prohibits wear-away -- so that an employee does not work for years without earning additional benefits – and provides additional transition protections. The House bill does not provide adequate protections for older workers.

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Garden City, MI: Can an employer eliminate a pension after a person has already retired? Can they modify a benefit such as health care for a retired employee that is 63 years old even though the employee retired prior to a merger and the modification is being conducted by the take over firm?

David Certner and LeRoy Gilbertson: If the retiree is vested in the employer's pension, then it can not legally be eliminated, unless the employer purchases an annuity to cover the pension obligation. Whether or not the employer may modify retirement health insurance coverage depends upon the terms upon which the coverage was provided, including whether or not the benefit is vested, etc.

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Brooklyn, NY: I participate in a 401(k) plan and I think it is great. How can Congress make sure everyone contributes to these plans when they are offered by employers?

David Certner and LeRoy Gilbertson: Congress is considering what is known as automatic enrollment. That is, if you work for an employer that offers a 401(k) plan the employee is automatically enrolled in the plan as opposed to having to choose to enroll. These proposals usually set the percentage of contribution at around 3%. Some proposals called SMART increase the percentage from 3% to a higher percentage every year the employee continues to work for that employer. The proposals also permit a default investment in which the employee’s contributions are invested.

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Cocolalla, Ida.: Speaking of retirement funds! It seems that I'm not able to get mine after two years of trying. The company filed bankruptcy and the funds are frozen by the holding company with no interest or expediency of distributing to the employees who need it for a variety of reasons, mine being health insurance. There is a pro bono lawyer group that helps people like myself in perhaps you gentlemen know how they can be reached? Any help you can give me would greatly appreciated.

David Certner and LeRoy Gilbertson: Contact AARP's Volunteer Legal Program at 601 E Street, NW Washington, DC 20049 to obtain a list of potential lawyers or litigation@aarp.org. DC

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New York, New York: I will be retiring in 2 years. I don't know what to do with my 401k. Keep it as is or put it into an interest bearing savings account.

David Certner and LeRoy Gilbertson: There are a number of things you have to consider. The amount you have, your health, how you feel about investing in the equity and bond markets. You have to be aware of how long your money will last. The more conservative you are the less money you may have in the later years of your life. If you have access to a financial planner I would suggest you get some advice.

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Boston Mass.: I have been retired for 3 yrs and receiving a life pension from the company. Is that pension going to be good for my entire life, or do I have to be concerned that it will terminate for some reason in the future??

David Certner and LeRoy Gilbertson: It depends upon the specific terms of the pension plan from which you are receiving a pension. Generally, a life annuity is for life, and there is no right on the part of the employer to terminate the pension.

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Boise, Ida.: I am one of the few lucky ones. The State of Idaho has a defined benefit plan, usually performs in the top quartile on annual returns, and posts an annual actuarial number as to how close it is to being "fully funded." If there is a prolonged shortfall, the legislature increases the contribution level (from both the state and the employee).

My question is: If Congress takes action, is my plan in jeopardy? Medicare D has not been an encouraging experience.

David Certner and LeRoy Gilbertson: State pension plans are governed by state law so Congress doesn't have anything to say about your pension plan. DC

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Cincinnati, Ohio: What action is being taken (or at least proposed) to ensure that the PBGC (Pension Benefit Guaranty Corporation) will have the resources to continue, for years to come, to cover benefits that have been terminated by corporations? What can AARP members do to ensure that legislation is passed to improve the PBGC situation?

David Certner and LeRoy Gilbertson: The PBGC guarantees most defined benefits if a company goes bankrupt. A significant number of bankruptcies recently have caused financial pressure for the PBGC. In response, Congress is considering legislation to raise the premiums -- paid by companies -- to the PBGC. AARP supports this premium increase, which will help increase funding for the PBGC. Also pending in the legislation are changes to tighten the pension funding rules, so companies will have less under funding that the PBGC has to pick up.

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Pittsford, N.Y.: Most so-called "pensions" are really "fixed income". Shouldn't there be some provisions to provide some form of "raise" to pensioners when inflation has over the years lowered the true value of a pension?

David Certner and LeRoy Gilbertson: Many plans have Cost Of Living Adjustments but they can be very expensive and thus lower the original benefit. Consequently, many plans do not have them in there plans.

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Middletown, N.Y.: Once you retire under a pension plan (even a state employee plans such as mine), is there any protection now from subsequent collective bargaining agreements reducing it or doing away with it and the related health insurance benefits? I ask this because of the court decisions that have allowed companies in bankruptcy not to be bound to retired employee benefits in contracts. When you make a decision to retire, these are the basic elements of planning--a stream of monies from your pension, social security, and assurance of health benefits being there.

David Certner and LeRoy Gilbertson: Pension plans and retiree health insurance plans are very different animals. Traditional pension benefits generally vest for the benefit of the employee after the attainment of certain seniority requirements, and they normally cannot be bargained away by bargaining representatives after they have vested. Health insurance is very different, and generally does not vest, unless there is a specific contractual agreement to the contrary. In the absence of vesting of health insurance vesting, generally the benefit may be amended, modified, terminated, etc.

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Ann Arbor, Mich.: Only already well-off or retired folks who are not working can attend a noon meeting on a weekday. Those of us that really need to be there are working. Can you please try to take that reality into consideration in the future so that those of us who really need to can be there on an evening, or a weekend?

David Certner and LeRoy Gilbertson: As this is an online forum, it is generally easier for most people to participate during the day, rather than in the evenings. For those who cannot go online while the forum is live, we will post the archived discussion tomorrow on www.aarp.org/issues so folks can view it at any time.

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King, N.C.: Does current proposed pension legislation protect so-called early retirement subsidy for those people have already retired under 65yrs of age & what is the likelihood that companies will be allowed to retroactively drop early retirement subsidy?

David Certner and LeRoy Gilbertson: In 1984 AARP advocated to get the Retirement Equity Act enacted. REA protects early retirement subsidies so that employers cannot drop the early retirement subsidy. However, early retirement subsidies are currently not covered by the PBGC.

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Garrett, Ind.: Is cash balance a good way to go for people over age 55 for retirement?

David Certner and LeRoy Gilbertson: It depends on the terms of the cash balance plan. The key concerns in cash balance plans, particularly for older employees, are that there is no earning time when benefits do not continue to accrue, such as during a transition period from a defined benefit plan to a cash balance plan.

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Ridgewood, NJ: What is your outlook for state-run pension programs? Thank you.

David Certner and LeRoy Gilbertson: Very favorable. Especially in those states that well managed plans. However, there is always a movement to convert them to defined contribution plans. Consequently, a watchful eye must be given to legislation as it is proposed.

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Roaring Gap, N.C.: Can a company change the monthly amount of the pension years after payment has started?

David Certner and LeRoy Gilbertson: After a pension is vested, the company generally may not cut back the amount of the benefit unless it is to increase it for the cost of living or perhaps for deductions from the benefit to cover health insurance, life insurance, Medicare premium, etc.

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San Francisco, Calif.: Are pensions for public employees as endangered as those for private sector employees?

David Certner and LeRoy Gilbertson: There are always movements to do away with defined benefit plans on the state and local levels. However, there is less danger when the funds are well managed like those at the state level in California.

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Cypress, Tex.: I may be one of the dwindling number of lucky ones who has been retired for 12 years and have both a defined benefit pension as well as a 401K equivalent (which I rolled over into a self directed IRA several years ago). My question is, how can a pensioner determine how safe, or at risk his defined benefit pension is in today's environment?

David Certner and LeRoy Gilbertson: You should review the Summary Annual Report which the plan sends to you every year. You can go on line to obtain copies of the Form 5500 and of course the plan is required to provide you with the most current plan documents including the Form 5500 upon written request (the plan can charge up for the copies). You can also request a copy of the actuarial report. Make sure you read the footnotes to the reports.

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Belleville, NJ: As you are aware, AT&T switched to a "Cash Balance" pension a few years ago. This resulted in most pensions (for those over 50 with 20 - 30 years of service) being cut in half. I know this has been in the courts for some time. Do you think that long time, faithful, AT&T employees will ever be able to retire with dignity?

David Certner and LeRoy Gilbertson: Conversions to cash balance plans remain controversial, and the courts are looking at age discrimination claims. AARP has filed in some of these cases on behalf of the older workers. We are also pushing congress to legislate protections for older workers -- when companies convert, as you note, older longer service workers will see dramatic benefit reductions UNLESS transition protections are included. Many companies have chosen to include these protections, but as you note, many have not.

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San Diego, Calif.: If a company adopts a new cash balance pension plan, and then freezes older workers pension benefit accruals under its traditional pension plan, has it violated federal age discrimination laws?

David Certner and LeRoy Gilbertson: Not necessarily, it depends on the terms of the new cash balance plan. There are several legal claims around the country testing the various aspects of cash balance plans, but as long as there is no discriminatory impact by the cash balance plan, there is no age discrimination. The critical considerations are the terms of the plan and the transition rules from defined benefit to cash balance.

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Santa Fe, NM: I am a retired state employee receiving a pension from the state where I worked and contributed equally with employer. Are these, already paying plans, in danger?
Thanks

David Certner and LeRoy Gilbertson: Most State funds have protection through their State Constitutions relative to paying benefits to current retires. I would check to see if that is the case in your State.

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Toledo, Ohio: I am 55 years old and have been employed at the same Fortune 100 company for 34 years. Several years ago my company changed the retirement plan from a defined benefits plan to a "cash balance" plan. At the time of the change I was old enough that I was told that I was eligible to retire under either the original defined benefits plans (salary base frozen as of year 2000) or the new cash balance, whichever was more beneficial. My question is, can my company take away this pension altogether or force me to retire under the new cash balance plan?

David Certner and LeRoy Gilbertson: Once you have retired, your company cannot take away your pension. If you are still working, your employer cannot take away any pension amount that you have already earned. However, your employer can terminate or freeze your pension plan going forward.

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West Babylon, N.Y.: Can a large corporation like IBM lower its pension payments to those already retired for ten years or longer.

David Certner and LeRoy Gilbertson: Generally once a retiree is vested and receiving benefits, the amount of benefit may not be lowered. In the event the retiree has voluntary deductions from the pension payment for such items as health insurance, life insurance, Medicare premiums, etc. then the net payment to the retiree may be lower on account of the deductions.

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LeRoy, MI: I retired about 5 years ago and have two defined pension plans that provide a small income. How do I know if those plans are in jeoparady ?

David Certner and LeRoy Gilbertson: The best way to size up the health of your plans is to request from each respective plan administrator a copy of the most recently filed form 5500 for the plan. You may review this form on your own or with the help of a knowledgeable accountant to determine the stauts of the respective plans.

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Fleetwood, Pa.: I was employed by a company from 1969 to early 1991, at which time I quit. I'm fully vested in the "old retirement plan". This plan was set up and paid for with 100% company monies. I receive a one-page annual statement for this account. As the media keeps reporting about pension failures, is my one-page statement valid proof of my ability to collect at the appropriate time? I am 55 and am on Social Security disability.

David Certner and LeRoy Gilbertson: If you are concerned, you should request that the plan provide you with a clarification of your benefit so you can see how much your pension benefit is. Usually your pension plan will have specific information you need to provide to collect your pension (like birth certificate, marriage certificate, etc). You should be able to find out from them what you need to submit. The one-page statement only shows that you are on the rolls of the pension plan; nothing else.

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Pennington New Jersey: For LeRoy Gilbertson:

As more and more private sector organizations move away from defined programs or abandon them to the Government, what is the future for the many Government Pensions out there?

David Certner and LeRoy Gilbertson: In most cases the future is very good for those Government Plans that are well managed. Most pension plans, private and public, are in trouble due to a couple of reasons. Inadequate funding and a rich benefit structure.

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Birmingham, Ala.: I am already drawing a pension. If the company I worked for went bankrupt, will my pension still come? Do the funds allocated for pensions go into a trust fund protected from bankruptcy?

David Certner and LeRoy Gilbertson: The Pension Benefit Guaranty Corporation guarantees defined benefit pensions. If a plan is terminated (which frequently happens if a company goes bankrupt), the PBGC will take over the plan including all the assets of the plan. The PBGC is responsible for handling those assets. For more information about the PBGC, go to www.pbgc.gov.

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Zionsville, Ind.: With all the downsizing, and Americans loosing their pensions, why would AARP be against private accounts as part of the Social Security plan. The fat cats in Washington have such a plan now. Could the AARP be against the working class??

David Certner and LeRoy Gilbertson: It is precisely because pension plans have become more risky that AARP supports a strong guaranteed Social Security system. Members of Congress, as you note, have an individual account pension plan they can contribute to -- but it is in addition to Social Security, not in place of it. Social Security is intended to provide a minimum, lifetime guaranteed benefit. We believe we need a strong Social Security system as the foundation of income security. In addition to Social Security, we encourage everyone to save and invest -- either through an employer provided pension or through an individual retirement account -- in order to achieve a more adequate income in retirement.

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Marietta, Ga.: How can I find out how secure my pension is ... that is, whether my company can later default on the pension benefit and what happens if my employer goes out of business or goes bankrupt?

David Certner and LeRoy Gilbertson: The only way to get a current read on the health of your pension is to request a copy of the plan's form 5500 filed for the most recent year on behalf of the plan. You may review the form yourself or with a knowledgeable professional to size up its status. This can be done annually, and should be done that frequently if you have concerns about the plan's finances. If the employer does go bankrupt or default on the pension plan obligations, the Pension Benefit Guaranty Corporation, a government funded agency, does come through and pay defaulted pensions up to a maximum monthly benefit.

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Irving, Tex.: What role can AARP and AARP membership play in protecting pension and health care plans?

David Certner and LeRoy Gilbertson: AARP volunteers, working with staff in 53 state offices and the national office, are a vital resource in protecting pension and health care plans. They work with elected officials in their home districts to remind these officials of the importance of these vital programs. If you would like to either volunteer to work with AARP's advocacy efforts, or become an activist, please go to our website:www.aarp.org/issues/become_advocate/

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San Antonio, Texas: What is your opinion on the safety of pensions provided for state employees and military retirees?

David Certner and LeRoy Gilbertson: Most of these funds are well managed. With well managed funds comes safety and soundness. Pension plans get themselves trouble by inadequate funding or giving out to rich benefits.

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Everett, Wash.: Isn't it against the law to borrow funds from pension plans? And if so why aren't these people in jail?

David Certner and LeRoy Gilbertson: Since 1974 ERISA has prohibited employers from borrowing plan assets, unless the transactions meet certain exemptions. AARP through its Foundation Litigation has been involved in cases where there have been allegations of fiduciary breaches. There have been some criminal investigations and indictments over the years, but the main focus has always been to make sure that the money is put back into the plan.

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Albright, WV: I'm confused regarding the PBGC. Are you saying your retirement is not covered if you've retired before the age of 65?

David Certner and LeRoy Gilbertson: NO. The PBGC covers defined benefit retirement plans. The PBGC does not cover the early retirement subsidy. So for example: if your pension benefit would be $1000 per month at age 65 and you retire at age 60 you benefit would normally be actuarially reduced to $700 per month. Assuming that your employer subsidized your benefit you might receive $850 per month. IF your plan was taken over by the PBGC and you were age 62, the PBGC would only protect the $700 not the $850. In other words, the PBGC does not protect the early retirement subsidy or the $150.
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Tucson, Ariz.: When will our Congress take action against the numerous corporations that are risking their employees' pension funds? Don't you think failure to act is a breach of current laws that govern pension funds?

David Certner and LeRoy Gilbertson: Congress is now considering changes to improve funding rules and other measures to make it more difficult for companies that may dump liabilities onto the PBGC. Much of the risk is not from employers doing mischievous things with the pension money, but rather from companies changing their pension promises midstream. Changing pension promises has a particularly negative impact on older workers who may have made employment and retirement decisons based on these pension promises. We believe congress should take steps to encourage companies to continue the benefit promises made to older workers.

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Jefferson, Maine: Is the PBGC maximum payment determined by the age you were when you retired or the age you were when your company's plan became insolvent?

David Certner and LeRoy Gilbertson: The maximum guarantee is set by law for the year in which your plan ended. The amount you receive from PBGC will be based, in part, on your age at the date you begin receiving benefits from PBGC and, if your benefit provides payments to a survivor, your survivor's age.

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Modesto, CA: Given the recent commentary regarding defined benefits for public employees, do you see governmental entities adding more 451's and IRA's to the mix and getting away from defined benefits for newer employees? And if you do, how will that affect funding for current retirees? State? Local?

David Certner and LeRoy Gilbertson: In most government plans there is protection for those employees currently in the defined benefit plans including current retirees. When defined benefit plans try to convert to defined contribution plans any reputable actuary will cost out what the future contributions will be and if the government entity wants to pick up the higher cost due to less contributions coming in then current retiree benefits are protected.

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St. Louis, Mo.: How solvent do you believe the pension fund of "The Machinists and Aerospace Workers Union" will be for its members who should be collecting in the next 5-10 years?

David Certner and LeRoy Gilbertson: The best way to assess the solvency of the plan is to request from the plan administrator a copy of the plan's form 5500 filed for the most recent year, as well as a copy of the most recent actuarial report for the plan. You may review these alone or with a competent professional to size up the plan's finances.

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Rapid City, SD: Retired Public Employees in this state are continually having their benefits threatened by the SDRS (Retirement Board) due to the fact that returns from investments are reported to them as decreasing. However, it appears that the market is continuing to provide wonderful increases. What specific actions might we attempt to thwart these attempts to counteract decreases in benefits? How might we provide direct communication with the Board members?

David Certner and LeRoy Gilbertson: I don't know what you mean by having your benefits threatened. If you mean COLA increases that may be the case because COLS often are hinged to investment returns. I don't believe your current benefits can be decreased, but you have to check your state laws. Relative to communicating with the SDRS Board, all meeting are public and I would suggest you attend a future board meeting and ask them your question.

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Tucson, AZ: I am fully vested in and eligible for traditional pension benefits under my Fortune Top 10 computer maker's retirement plan. I will not be retiring for several years, but am concerned about degradation of benefits. How likely are these benefits to be retroactively diminished to apply to those of us who qualify now, but may not retire for 4 or 5 more years?

David Certner and LeRoy Gilbertson: The employer has no right to cut back a benefit that is already vested. Inflation, of course, may degrade the relative value (purchasing power) of the benefit, but the absolute amount of it may not be lawfully diminished by the employer.

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La Grange, Texas: My husband devoted 32 plus years to an international company. He has a small retirement benefit that we thought was guaranteed when he was working. It is very frightening to hear any idea of discontinuing his benefits that was part of the deal. Do we really need to fear that the Company will just drop us now?

David Certner and LeRoy Gilbertson: If your husband is vested in the plan, then the company has no right to interfere with the benefit that he has already earned. Even if the plan is discontinued, his vested benefit is still a matter of entitlement, and all or part of it has probably been funded by the company already.

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Stuart, Fla.: How can I find out if my employer pension is adequately funded? I know they are required to send a statement, and in theory, I can request a report, but I'm told that it is so complex that I couldn't figure it out, and besides, it is at least a year out of date.

David Certner and LeRoy Gilbertson: You can and should request the report called the Form 5500. The form is required to be filed in the fall following the year in which it is due (so the form 5500 for 2004 was due in fall of 2005). You can also obtain copies of back years from www.freeerisa.com. It's not that difficult to review.

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Beloit, Wisconsin: Do the speakers agree with my opinion stated below, and if not, what evidence would they put forward for a contrary view? While I agree that defined contribution plans expose a saver to market risk, it can be a highly diversified risk. But a defined benefit plan seems much riskier, since promised benefits may depend upon the skill and integrity of a single corporate retirement fund management group. In at least some cases the viability of the retirement plan is tied to the current health of that one single corporation. Will pension benefits insurance remain solvent?

David Certner and LeRoy Gilbertson: There is investment risk in both defined benefit and defined contribution plans. In defined benefit plans the plan assumes the risk while in defined contribution plans the employees assumes the risk. If a defined benefit plan has multiple asset classes and investment manages it tends to be less risky. The reason being the employees do not typically have the expertise to make investment decisions. If the defined benefit plan has only company stock to invest in then yes they are riskier.

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Port Orchard, Wash.: What exactly does the government do to help the ordinary person get the pension they thought they had?

David Certner and LeRoy Gilbertson: A person who has a vested benefit in a pension plan who has concerns that he/she is not being fairly treated may contact the Office of the Secretary of Labor's, the EBSA (Employee Benefit Security Administration) and seek assistance. In so doing, it will be helpful to have the name of the employer, the name of the plan, and copies of any annual statements of benefits and other plan documents.

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David Certner and LeRoy Gilbertson: Thanks for joining us today. It has been interesting and you have submitted some great questions. I am sorry we could not answer all of them, our fingers just don't move that fast. If you want to view the questions and answers of this forum at any time, please check out the washingtonpost.com web site archives or go to:
www.aarp.issues.

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Moderator: This concludes our discussion. Thank you for joining us today!

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