When Howard Kaufman retired in 1968 after 35 years at Packaging Corp. of America in Rittman, Ohio, he got a $74,83 monthly pension in addition to his Social Security.
Since then, the cost of living has more than doubled. Kaufman's Social Security benefits, which have an automatic cost-of-living escalator, have gone up repeatedly.
But his company pension "has never gone up a nickel in the past 11 years. It's still $74.83. You can see where a man is dropping behind just a little bit all the time" Kaufman said in an interview.
Tony Trink, who worked at the Westinghouse Air Brake Division of American Standard for 40 years, has also found the value of his private pension eroed by inflation, with few company increases to keep pace.
When he retired in 1963 his company pension was $72.84 a month. Today it's $101.01 -- while the cost of living has gone up to 130 percent over the same period.
The experience of Kaufman and Trink is shared by millions of retired workers who receive private pensions to supplement their Social Security.
Government and private studies show that only a handful of private pension systems have automatic cost-of-living increases and most of these have a ceiling of 3 percent a year.
Millions of retirees get no increases at all or must depend on occasional one-shot boosts volunteered by the company or negotiated by a union.
"People on fixed incomes are being eaten alive by inflation," said a pension expert on Capitol Hill.
"People are damned worried," said Mike Romig, a pension spokesman for the Chamber of Commerce.
The cruel bite of inflation was described recently by Alicia Munnel, vice president and economist of the Federal Reserve Bank of Boston.
"With an inflation rate of 6 percent," said Munnel, "a private pension benefit of $2,100, the average in 1975, is reduced to a real value of $1,171 in 10 years." Since 1973, the inflation rate has been well over 6 percent -- today it's nearly 13 percent.
Many pension experts say this failure to keep benefits up in the face of today's high inflation rates threatens the very existence of the entire private pension system in the United States.
The basic purpose of a private pension plan is to "provide a retirement income that will enable the pensioner to maintain a certain relative standard of living," said Social Security's former cheif actuary, Robert J. Myers, now a professor and consultant.
If pensions lose their value through inflation and no steps are taken to provide cost-of-living adjustments, there will inevitably be pressure to increase Social Security benefits to compensate, Myers said in a book on pensions.
Private pensions will then shrivel in importance and "they will be faced with extinction in the long run."
Munnel said, "In a highly inflationary environment, total Social Security payments would probably expand beyond current projections and private pensions would become relatively unimportant."
Only half the active labor force works in jobs covered by private pensions, and only 8.6 million retirees in the entire country are actually receiving private pensions [at the less-than-princely average of about $217 a month].
On top of that, study after study shows that increases to meet the cost of living are few and far-between:
A 1975 survey by Bankers Trust Co. of 271 pensions plans run by big, affluent firms showed that a worker retiring in 1970 in one sample group of these firms would have received only 11 percent overall in pension boosts from 1970 to 75, while the cost of living was rising three times as fast. Eight plans had automatic cost-of-living features, but every one had a 3 percent annual ceiling. A recent update based on 103 firms shows that about four-fifths did give some increases to retirees from 1970 to '79, but "virtually none" gave enough to maintain the purchasing power of the original pension.
A survey by Gayle B. Thompson, of the Social Security Administration, showed that the real value of a sample group of retirees' private pensions declined 14 percent between 1970 and '74 because they didn't get cost-of-living increases sufficient to match soaring prices. In another sample, less than one-fifth of the private pensions went up enough in 1972-'74 to match inflation, 27 percent went up some but not at a pace with inflation, while "the largest group of pensioners received the same benefit in both years."
A Labor Department study by Mathtech of Princeton shows that, in one sample, about one-third of private pensions kept pace with inflation in 1970-'72 ., but less than a fifth kept pace in 1972-'74, when inflation was much higher.
A large groups of surveys cited by Myers confirms that very few pensioners get increases that keep pace with the cost of living. Many plans do volunteer one-shot or sporadic boosts, but these seldom match current inflation rates.
If inflation is decimating the value of private pensions, why don't the firms simply provide for automatic cost-of-living adjustments [this is called "indexing"] the way the government does with Social Security and civil service pensions?
There are lots of answers, but the main one is money. It costs big bucks to "index" private pensions.
"It's a very expensive proposition," said the Chamber's Roming. It's an expensive game to play catchup ball on inflation. You try to keep feeding that little lion that keeps roaring."
Donald Grubbs, a leading actuary formerly with the Internal Revenue Service and now with the George Buck consulting firm, estimated that to keep pace with a 4 percent cost-of-living increase, the typical company in the long run would have to increase its private pension outlays by 33 percent.
If inflation were running at 8 percent, Grubbs said in an interview, the cost of typical plan would go up at least 77 percent.
Myers estimated that, at inflation of 5 percent, fully indexing a pension plan would add 30 to 40 percent to its costs.
Another respected actuary, Everett Allen of Towers, Perrin, Forster and Crosby, said that while added costs from cost-of-loving features can vary according to the type of plan, level of benefits, composition of the workforce, etc., "one rule of thumb is that pensions costs will increase by about 10 percent for each 1 percent annual increase in pensioner benefits."
Vetter Price's George Pantos, a spokesman for the ERISA Industry Committe, which consists of about 100 of the largest private company plans in the country, said the members are extremely apprehensive of automatic cost-of-living formulas because "companies don't want to be locked onto any formula. They don't know what their profits and business conditions are going to be in the future."
They don't want to be tied into commitments which are open-ended and uncertain, because nobody knows just what the future rate of inflation will be, Pantos said.
"You often hear the remark: Benefit dollars are not infinite; they're finite," Pantos said.
He quoted an official of one large plan: "Any attempt to legislate an escalator, even a modest one, would bankrupt many plans."
Despite the clear problem, there isn't very wide support for a possible federal law mandated cost-of-living increases for private pensioners.
Grubbs indicated he would favor some form of mandated private pension increase, once pensions cover everybody. But he said the fact that only half the labor force is pension covered is a problem with greater priority.
Myers said he favors providing automatic boosts but not necessarily up to the full inflation rate, but stopped short of endorsing a federal reguirement now.
Mike Gordon, a pension expert, said he favors the concept but would want more information on costs and impact. Putting extra money into cost-of-living increases for those who have high pensions might distort the overall income picture for the aged, he said.
Karen Ferguson of the Pension Rights Center, saying costs are a serious problem, suggested that some "cap" on the increase might be considered.
Betty Duskin of the National Council of Senior Citizens said, "Until we're ready to mandate pension plan coverage, how can we mandate cost of living increases?"
Jim Hacking of the American Association of Retired Persons also shied from endorsing a federal mandate at this time: "It's sort of like the rock and the hard place. If you mandate even within limits of 5 or 6 percent a year, the costs are just tremendous and you're going to get employers dropping plans."
Fear that costs would induce firms to junk their plans, or discourage other firms from starting them, was cited by many as a reason to go slow on requiring cost-of-living features.
Myers, Grubbs and others pointed out that it would be possible to write cost-of-living proposals that would limit gross unexpected costs and make outlays predictable.
For example: you could write a system covering only the first 3 to 4 percent of inflation. Or ignoring the first 3 percent if inflation each year but providing boosts for perhaps the next 5 percent, with a ceiling at 8 percent. Or giving the pensioner half the inflation rate. Or cover only retirees with lower pensions.
That is all in the future. Meanwhile, most pensioners will have to wait and watch their purchasing power dribble away.
One possibility is that the government would sell to pension funds a new form of security called "index bonds" whose redemption value [and perhaps interest as well] would rise with inflation. This would allow pension fund assets to keep pace with inflation and provide the money to boost benefits. But this proposal presents broader economic problems and whether it will ever be adopted isn't clear.
Kaufman, from his trailer home in Dalton, Ohio, said that at 76 he really doesn't think it is fair to ask him to wait too long for a solution to the pension-indexing problem.
After all, he said, the firm he worked for is the sister company of a big contractor that makes ships for the government -- and gets compensated when it has big cost overruns.
I've got a cost overrun on my living expenses, but on my side of the fence it's a different story," he declared ruefully.