Are workers right to be concerned? Here’s what we know about the Chrysler and General Motors pension plans.

So far Chrysler and GM employees and retirees can rest assured that their pensions will not be terminated. Thanks to the efforts of the United Auto Workers union and others, both Chrysler and General Motors have pledged to continue sponsoring their pension plans during the bankruptcy process and beyond.

Contrast the actions of Chrysler and GM with those of United Airlines. When United entered bankruptcy, it dumped its pension obligations on the PBGC, the federal agency that insures pensions. It was the largest default by a company in the PBGC’s history, and thousands of pilots, flight attendants, and other workers were hurt in the process. A year later, when the company emerged from bankruptcy, it awarded its CEO and other top-level executives millions of dollars in bonuses and stock options.

Concerned that what happened to United pilots could happen to them, a group of Continental Airlines pilots allegedly faked divorces to try to protect a portion of their pensions that could be lost if their company were to go into bankruptcy. Watch PRC Policy Director Karen Friedman discuss why the pilots might have taken such extreme measures - and why they should have confidence in the PBGC -  in an appearance on Good Morning America.

Fortunately, Chrysler and GM workers and retirees don’t have to worry about bankruptcy affecting their pensions, at least for now. But what if the two companies don’t recover and the pension plans of these two companies must be terminated? 

Here’s what all workers and retirees should know about their traditional pensions:

1. Pension assets are separate from company assets, so a pension plan’s funding level isn’t necessarily tied to a company’s financial health. A bankrupt company could have a fully-funded pension plan.
2. For workers with traditional pensions, the Pension Benefit Guaranty Corporation (PBGC) insures pension benefits up to a certain maximum guaranteed benefit.
3. 84 percent of pensioners whose companies have turned their pensions over to the PBGC receive their full pension benefit.

Because traditional pension plans - like those of General Motors and Chrysler - are protected by the PBGC, workers and retirees in these plans will receive up to the PBGC’s maximum guaranteed benefit if their pension plan is terminated.  For more information, read a PRC fact sheet on PBGC guarantees. The PBGC has set up a web page to provide information to auto-sector workers and retirees.

There are several groups working on behalf of automotive-sector retirees affected by the Chrysler and General Motors bankruptcies. Below are links to a few of their web sites:

• Delphi Salaried Retiree Association
• GM Retirees Association
• National Chrysler Retirement Organization
• Over the Hill Car People
• United Auto Workers

See our list of organizations that are working to protect retiree benefits at other companies.

Of the companies on our list, the vast majority have ceased their 401(k) matches completely, which raises the question: does it have to be all or nothing?  What if a company reduces the match, as some have?  A company that is contributing a dollar-for-dollar match up to six percent of the employee’s salary could temporarily lower the match to 50 cents on the dollar up to six percent.  Such a move would continue to provide the incentive that many employees need to save (during hard economic times, some might stop contributing to their 401(k)s themselves if there is no match), while temporarily lowering costs for the employer.

Tough times do call for sacrifices, but it is worrisome when cost-cutting measures fall squarely on the shoulders of the workers.

As we wrote last month, the Making Work Pay Tax Credit is designed to stimulate the economy by having employers withhold less taxes from employees’ paychecks.  Accordingly, the I.R.S. issued new tax withholding tables to reflect the lower withholding.  Paying less taxes sounds great - except that these are the same tables that pension plans use to calculate tax withholding on pensions. 

Because the tax credit doesn’t apply to pensions, non-working retirees who aren’t eligible for the tax credit might have had too little tax withheld and could have ended up owing money at tax time next year.  For retirees living pension check to pension check, an end-of-the-year tax liability would have been an unfair burden. 

We applaud the Treasury for correcting this oversight and issuing new withholding procedures specifically for pension plans.  Thanks also to AFSCME and the other groups that helped bring this issue to light.

I’m not talking about the retirement security of the league’s highly paid players - players are covered by a separate pension plan. I’m talking about the NFL coaches, office staff, and others who provide team support. The league, which has doled out $100 million contracts to players like quarterback Ben Roethlisberger and offensive lineman Albert Haynesworth, is reneging on its retirement promises to team staff.

According to various news reports, NFL owners used their annual winter meetings to allow each team to decide if it wanted to stick with the league’s pension plan or if it wanted to start one of their own. Prior to this, all NFL teams belonged to the same retirement plans. While it’s possible that teams could improve their benefits, it’s more likely that teams will freeze their pensions or suspend their 401(k) matching contributions.

And, unfortunately, the policy change also gives many of the NFL’s most-valued and long-time coaches a reason to retire from the league before any changes go into effect. Already ESPN.com is reporting that two Indianapolis Colts coaches are planning on retiring now because certain changes could result in a loss of benefits. And there could be more to come. CBSSports.com is reporting that a memo circulated among NFL coaches indicates that at least nine teams plan on making changes to their pensions.

According to an interview with ProFootballWeekly.com, Al Everest, special teams coach for the San Francisco 49ers, “one of the key ingredients of staying [in the N.F.L] …is because you knew down the line that you were securing your retirement.”

Now that this may no longer be the case, many NFL coaches, assistants and staff are worried about their retirement security. And they have a reason to be.

Arnott, who reviewed data going back to 1801, found that there are several long periods in which bonds outpace stocks: 1803-1871, 1929-1949, and 1968-February 2009.

The findings of Arnott’s research have just been published in the Journal of Indexes - and were previewed in an item by Lawrence C. Strauss in the March 30 issue of Barron’s. “We’ve had 30 to 40 years of building this cult of equities, where if your time horizon is long enough, it doesn’t matter what you pay for stocks,” Arnott told Barron’s. “That’s dangerous.”

For some baby boomers, Arnott’s findings might prove troubling. Because bonds outperformed stocks from 1968 to 2009, many of the baby boomers who relied on stock performance to provide for a good retirement have seen their nest eggs tumble along with the stock market.

But for some, it is already too late. The first group of baby boomers - those born in 1946 - turned 62 last year, and many chose to take early retirement.  These baby boomers have been the most affected by the recent stock market crash and may be disappointed with their retirement savings - unless stocks stage a dramatic recovery in the next few years.

Read the Washington Post’s analysis of Arnott’s study.   

Robert Stowe England is a financial writer and a consultant to the Pension Rights Center. An April 18, 2009 interview with Robert Arnott appears in his blog Mind over Market.   

Today the only leg of that stool that remains intact is Social Security. More and more employers are breaking their pension promises by freezing their traditional pension plans or by suspending their 401(k) matching contributions. And most workers have very little in personal savings. 

What remains clear, however, is that we need something more. Take one look at the statistics for older Americans today and you’ll see why. For 2009 the average annual Social Security benefit is $13,383, only slightly more than the federal minimum wage. And, in 2007, half of Americans age 65 and older who had income from financial assets received less than $1,585 a year in income from those assets. Significantly, older Americans with pensions fared much better than those without them. The median annual income of retirees with pensions was $31,227 while the median annual income of retirees living only on Social Security was $16,527.  

And for women, the numbers are far worse. According to the Congressional Research Service, in 2007, the median annual income for women age 65 and older was $13,877 compared to $24,142 for men. The Elder Economic Sufficiency Index released by Wider Opportunities for Women shows how elders with low- and modest-incomes are challenged to cover their living costs today, as costs for basic needs are rising much faster than their incomes. That’s why the Pension Rights Center’s Women’s Pension Project is working to make retirement plans fairer to women. 

At the same time, something must be done to ensure that the three-legged stool of retirement security is redesigned and rebuilt. That’s why the Center, along with three other organizations, launched Retirement USA, an initiative working toward a new retirement system that, along with Social Security, will provide universal, secure, and adequate income for tomorrow’s older Americans. 

This blog entry was written as part of a blog day sponsored by Wider Opportunities for Women.  For more information, visit their blog, Elder Economic Security Initiative.

In the lead story, “Who Shredded Our Safety Net?“, James Ridgeway uses his own work history to trace the growth of 401(k)s and highlight the problems caused by our increasing reliance on them. The article provides an indispensable overview of how our retirement income system evolved into what it is today and insight into where it might be headed. It also includes a quote from our director, Karen Ferguson, as well as a mention of Retirement USA. In “Rip-Off Artists,” David Cay Johnston describes various ways that companies and executives can game the system to break pension promises to workers.  In “Security Blanket,” James K. Galbraith makes that case that Social Security and Medicare could be “powerful weapons” against the current economic crisis. And in “No Country for Middle-Aged Men,” Sasha Abramsky illustrates the real-world impact that our faulty retirement system has had on older workers.

Ridgeway’s article is available online for free right now, and the rest of the issue should be available online over the next several weeks. Or look for the magazine at your local newsstand or bookstore.

The Lily Ledbetter Equal Pay Act of 2009 will not only help close the wage gap for women who have experienced pay discrimination in the workplace, but it will also help close the pension gap.

During their lives women are hit with a double whammy. First they encounter the wage gap. According to the National Women’s Law Center, a woman working full-time today will earn 78¢ for every dollar earned by a man. This wage gap will result in a substantial earnings difference between men and women over the course of their professional careers.

When they retire, women are hit with a consequence of the wage gap - the grim reality of the pension gap. After a lifetime of earning less than men, women retire only to discover that their pensions and 401(k) balances are much smaller than those of their male counterparts - in part because of a lifetime of lower wages. 

Also, long-standing inequities in the laws, women’s work patterns and longer life expectancy contribute to lower retirement income for women. The Pension Rights Center’s Women’s Pension Project is working with the National Women’s Law Center and other women’s and retiree groups to eliminate these inequities.

This blog entry was written as part of the National Women’s Law Center’s Blog for Equal Pay Day. For additional information and links to other blog entries on the topic of equal pay, visit Womenstake, the NWLC blog.

The PBGC guarantees pension benefits up to a certain limit for retirees of companies that have gone bankrupt and are unable to fulfill their pension obligations.  Unfortunately for some retirees, the PBGC maximum guarantees may be less than what their pension is worth.  For more information on how the PBGC protects defined benefit pensions, read our fact sheet.