About 11 percent of large companies that offer traditional pension plans either terminated them or froze benefits last year, a new study says.
And as workers around the country are watching their retirement funds shrink, CEOs at companies with massive unfunded pension obligations continue to collect huge salaries and retirement benefits. In addition, rule changes are being considered that could force even more companies to ditch their promises to workers.
"The companies are operating in a world of uncertainty," said Sylvester Schieber, director of U.S. benefits consulting at Watson Wyatt Worldwide, which conducted the study. "Big companies that continue to be viable, for the most part, have not cut and run, although if we go on indefinitely with this uncertainty they undoubtedly will," he told the Associated Press.
The study stated that 71 of the 1,000 largest U.S. companies last year ended their pension plans or would not allow workers to accrue additional benefits. That number was 45 companies in 2003. About half of the 71 companies are financially troubled.
Four companies with falling profits and big pension problems – Ford, GM, United Airlines and Continental – gave their top executives huge retirement payments. According to MSN Money, unfunded pension obligations at Ford have risen to a $12.3 billion; the shortfall is $7.5 billion at General Motors. Ford Chief Executive William Clay Ford Jr. has collected $53 million over the past three years. At GM, G. Richard Wagoner Jr. got $40.7 million over that period.
Lawmakers are debating changes in pension funding rules and the premiums companies pay to the Pension Benefit Guaranty Corp., which insures pensions. Higher premiums may force some companies to abandon their pensions, some observers say.
Meanwhile, the rule-making board for U.S. business is separately considering new rules for accounting for pensions. The New York Times called it an “open secret” that accounting rules for pensions – which allow spreading gains and losses over several years to even out sharp year-to-year changes – distort the financial health of both the pension plans and the companies behind them. The rules make it difficult to determine if the pension is well funded or how risky the investments are.
"I'd like to make people believe I'm 6-foot-2 and had a full head of hair, but if you look at me, you'll see that I'm really 5-foot-9 and I'm bald," said Robert Herz, chairman of the Financial Accounting Standards Board. "It's human nature to try to make yourself look as good as possible. Sometimes, it seems as though some people perceive accounting as a way of doing that."
A new pension accounting standard could involve requiring companies to use actual investment returns every year, rather than expected annual returns. If the change is made, some companies say they will end up with “unacceptable volatility” in financial reports.
"Some employers could say, 'I just don't want to do this anymore,' and just get out," said Ron Gebhardtsbauer, the senior pension fellow for the American Academy of Actuaries, according to the Times. "We want to be careful," so that companies do not just stop offering pensions altogether.
United Airlines, which filed for bankruptcy in 2002, is abandoning its pension plan. Actuarial projections that United's pension fund would earn $740 million in 2000 helped to boost corporate profits that year, even though the pension fund gained only $21 million. According to an analysis by the New York Times, if United had included actual pension values in its financial reports it would have shown an operating loss on its financial reports that year, not a profit.