Private pension system is in trouble

By JOHN HALL
MEDIA GENERAL NEWS SERVICE
WASHINGTON -- There was something almost poignant last week about President Bush's three-day trip through Florida to promote his prescription drug program in advance of today's sign-up deadline. His poll numbers were crashing even below woeful second term expectations, and Bush was still out collecting stories of how many dollars people saved on their drug bills.
Frustration and confusion abound in this massive public sector social program with 40 or more separate plans to choose from. There is some buyers' remorse, both among conservatives and liberals, over the biggest expansion of Medicare since its inception.
The prescription drugs program was a first term accomplishment. The crown jewel of President Bush's second term was to have been Social Security reform.
Had Bush stayed above water in the polls, he might have been out generating enthusiasm for Social Security reform with some kind of an investment element in it. But a PBS "Frontline" program Tuesday night (May 16 check local listings) called "Can You Afford to Retire?" shows why any extensive linking of Social Security to the stock market may be out of reach for a long while.
Chilling picture
Hedrick Smith, The New York Times reporter who has carved out a unique place for himself in documentary television, paints a chilling picture of the future of the American private pension system. Smith talked to experts who concluded that the corporate retirement system is so shaky that baby boomers should have a nest egg as much as 15 to 18 times their annual earnings before contemplating retirement.
Even if individuals can weather the coming storm, the government is threatened by a mountain of potential hidden debt. The Pension Benefit Guarantee Corporation is staring at $450 billion in under-funded pension liabilities. A lot of this is being flung its way from the corporate bankruptcy mania.
Smith tells the story of the United Airlines bankruptcy through the usual process of interviewing long time employees whose pension checks were slashed. But he also is quick enough to understand and translate bankruptcy lawyers and their dry language of pre-cooked "first day orders" that doomed the pensioners from the beginning.
The irony was that by getting rid of its pension plan and breaking its agreement with its retirees through the Chapter 11 bankruptcy process, United was able to resurrect itself and become a stable company again.
But many made-over companies have turned to 401k pension plans. These are employee-managed investments rather than a pension plan managed by the employers.
While there have been good results in the use of 401ks to supplement basic pension plans, Smith finds evidence that many big corporations are now beginning to turn their entire pension programs into 401ks, effectively leaving their employees' retirement to the mercy of the stock and bond markets.
For now, there is so much fear, mistrust and confusion about the markets -- particularly among lower educated workers -- that they are not investing at all in their own futures even when corporations encourage it through pension contributions. Smith made the startling discover that the average size of a 401k retirement account is $29,000. That won't buy many groceries or pay much rent in retirement.
Stock market
The stock market has been on a rip and it would ordinarily be a perfect time to sell the idea that 401k retirement accounts belong in Ye Olde Social Security System.
But there couldn't be a worse time.
With private pension plans in such a mess, there is probably no chance now for resurrection of President Bush's proposal for voluntary investment of a portion of Social Security payroll taxes for workers who want it.
The sad thing is that, as some sort of supplemental program to encourage people to save and invest for their future, an investment incentive is needed more now than ever because of the collapse of private pensions, as the "Frontline" hour documents.
The looming fiscal crisis for the Social Security system -- as Baby Boomers retire and begin exhausting the trust fund -- will have to be addressed somehow. Social Security and Medicare are all that stand between a lot of people and a pauper's grave.
John Hall is the senior Washington correspondent of Media General News Service. Distributed by Scripps Howard News Service.