The Benefits Trap
Source: Business Week
Old-line companies have pledged a trillion dollars to retirees. Now they’re struggling to compete with new rivals, and many can’t pay the bill. [Full text at site.]
This article is a very comprehensive (albeit negatively-toned) analysis of the status of defined benefit retirement plans in this country. Although it concentrates on corporate defined-benefit plans many of the issues in the article also apply to government plans. Interestingly enough, however, the State of North Caroline has lost two class-action lawsuits pertaining to retiree benefits. One (Bailey-Emory-Patton) would not have applied to plan administration — but one (Faulkenbury et. al.) did. I would be interested in finding out whether or not corporate defined-benefit plans run a similar legal risk of class-action lawsuits if benefits are abruptly reduced. My guess is that they don’t, since to my knowledge the PBGC only covers corporate plans…but I am not a lawyer so that guess shouldn’t be taken very seriously.
Before the State’s award-winning retirement seminar program was cut in 2002, I was a certified seminar leader and benefits counselor. We repeatedly used the image of a three-legged stool to talk about retirement planning, and emphasized that without all three legs — our retirement program, social security, and personal savings — the stool would fall. I can tell story after story of seeing employees’ heartbreak when they realize they can’t afford to retire even though they have reached full eligibility in our plan. Yet just last week someone told me they didn’t see a point in supplemental savings since state employees have both social security and state retirement. (North Carolina is one of the very few states that withholds FICA on state employees.) I’ve even deliberately tried to scare people by pointing out that retiree health benefits have been cut once before and that even though that cut was reversed, the precedent for possible future cuts has been established.
I’m not sure how to develop a workable solution to such a head-in-the-sand attitude among employees. Obviously, education is key, but it seems that employees are not responding well to theoretical information. Unfortunately, confidentiality restrictions stand in the way of telling horror stories (for good reason, I should add). I’m terribly afraid that the prevailing attitudes in this country won’t change until social security actually collapses, and by then it will be too late.