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No promises

Money | Leave it to Time magazine to offer up a scoop and then miss the most important part of the story. Donald Bartlett and James Steele, in the cover story of the newsweekly's Oct. 31 issue, deliver a scathing indictment of Corporate America for abandoning pension promises it made to former workers

Issue: "Riots in France," Nov. 19, 2005

Leave it to Time magazine to offer up a scoop and then miss the most important part of the story. Donald Bartlett and James Steele, in the cover story of the newsweekly's Oct. 31 issue, deliver a scathing indictment of Corporate America for abandoning pension promises it made to former workers.

What gets the duo's dander up is the decline of defined-benefit pensions-plans that offer a guaranteed income for life to retirees. Company after company is jettisoning such plans for new workers, and some are even going into bankruptcy to get out from under pension obligations to former workers. "It's the equivalent," write Messrs. Bartlett and Steele, "of your bank telling you that it needs the money you put into your savings account more than you do-and then keeping it."

The examples they give of workers being left with little or no pension are enough to set a reader's teeth on edge, as is the realization that taxpayers may have to bail out the Pension Benefit Guaranty Corp. (PBGC), the struggling government-created agency that insures pension plans.

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But the problem with Time's story is that it doesn't go far enough. The issue isn't just that companies are breaking promises; it's the promises themselves. In union negotiations over the years corporate managers made lavish offers of pension and retirement health benefits as a way to bargain yet put off costs to the future. That future has arrived, to the tune of $1.4 trillion in total pension liabilities for S&P 500 companies, according to Credit Suisse First Boston. (The PBGC says $450 billion in pension liabilities remain unfunded.)

Much of that burden is concentrated in a relatively few old-line industries, and Messrs. Bartlett and Steele write as if these companies could pay such a staggering sum and stay in business. They rail against the growing practice of companies "pulling the plug on guaranteed pensions for new workers." But what those companies are doing is, finally, dealing honestly and not making promises they cannot keep.

To improve on Time's bank analogy, what companies did for decades was like your bank promising you 50 percent interest, and then, lo and behold, being unable to pay it. The bank is now merely not making such reckless promises in the first place.

Messrs. Bartlett and Steele make some important points. Many corporate boards have given CEOs unconscionably large retirement packages; Congress has made it easy for companies to hide their pension problems; and the 401(k) revolution may not be the panacea that its supporters make it out to be.

But subtract all of that from the equation, and the old pension system still would be an impossible burden on companies that must make money to survive. Messrs. Bartlett and Steele do not even begin to explain how the older companies (like the Detroit automakers) could maintain their defined-benefit pensions and remain competitive.

Neither do the writers set the corporate pension crisis in context. It's no coincidence that corporate pension problems are occurring at the same time that Social Security and public-employee pension systems begin to face massive shortfalls. All three have the same root problem: too many retirees, not enough workers.

It is not the fault of Corporate America or Congress that baby boomers chose not to have many children. Or that Americans now chronically spend beyond their means. Or that Americans have come to believe that old age and retirement should be times of idleness. These phenomena have become American ideals over the last few decades, but taken together they are as unsustainable as they are unbiblical.

None of this fit into Time's seven-page morality tale. That tale is true as far as it goes: Corporations are breaking promises and will likely leave taxpayers holding the bag. But the real story is so much bigger.

Going down?

That giant sucking sound you're hearing is the price of oil and gasoline heading south. The price at the pump is falling almost as fast as it rose after Hurricane Katrina ravaged the Gulf of Mexico last summer.

AAA reports that gasoline prices fell to an average price of $2.38 per gallon last week, down from an average of $2.90 a month ago and $3.07 in early September. Oil prices also dipped below $59 per barrel last week.

The main reasons for the drop are that gasoline imports are up, refineries in the Gulf are getting back to full production, and a warmer than usual autumn has kept demand for home heating oil lower than expected.

"Just from the refinery side of things we've got at least a dime to go downward on heating oil prices. And a few more cents on gasoline," energy analyst James L. Williams told the Hartford Courant. "And right now, in the short term, I see more downside to crude oil prices than upside." Trilby Lundberg, publisher of the Lundberg Survey of gas stations, predicts "more price cuts, but at a much smaller rate than we've seen for the past month."

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