The Dallas Morning News
By Michael Schnurman
December 21, 2013

For most Americans, traditional pensions have been fading for years. At Boeing Co. in Washington state, a union is making one last stand.

Call it one last gasp.

The machinists recently rejected a contract that would replace their pension with a 401(k). Management responded by threatening to move production of the next-generation 777.

Twenty-two states promptly submitted bids for the giant factory and thousands of jobs. Texas is believed to be among them. Boeing said last week that it was whittling the number to “a handful.”

It’s not clear whether Boeing’s economic plum is really up for grabs or just being used to whip the union. But there’s no mistaking what the showdown says about retirement. [EXPAND Read more]

“What I tell my students is: ‘Save more, work longer and expect less,’” said Olivia Mitchell, executive director of the Pension Research Council at the University of Pennsylvania.

Past battles over jobs and pensions have played out here, and the results aren’t encouraging for Boeing’s rank and file. Last year, machinists at Lockheed Martin’s fighter plant in Fort Worth went on strike for two months. Then they gave up pensions for future hires.

At American Airlines, unions held on to their pensions while other legacy carriers ditched them. When American filed for bankruptcy, ending the pension topped the to-do list. It’s already been a big factor in a financial turnaround.

The biggest problem with pensions is that costs can swell from factors beyond management’s control. Declines in investments and interest rates drive down assets and drive up obligations.

That’s been the story for the last decade, when the 100 largest corporate pensions had funding deficits most of the time. Their cumulative shortfall hit $389 billion last year, according to Milliman Inc.

Boeing has been growing fast, but its pension deficit grew faster. From 2009 to 2012, the pension shortfall tripled to $19.7 billion. Boeing revenue increased almost 20 percent over the same time.

One year ago, Boeing’s pension obligations were almost as large as annual sales.

A long trend

Companies have steadily trimmed pensions, preferring the predictable (and lower) costs of 401(k)s. Defined-contribution plans accounted for almost 7 in 10 participants in employer retirement programs in 2011. In 1979, the situation was flipped, with pensions having 84 percent of the market.

“Boeing represents the tail end of a long trend,” said Andrew Eschtruth of the Center for Retirement Research at Boston College.

He said the center has stopped studying corporate pensions because they’re fading so fast. Instead, it tracks pensions for public employees, such as police and teachers. The funds are often in the spotlight, because their liabilities are massive and taxpayers are ultimately on the hook.

In recent weeks, pensions in Illinois and bankrupt Detroit came under so much pressure that there were moves to cut retirement benefits.

Public and private pensions have significant differences. For public employees, they often serve as a replacement for Social Security, with higher worker contributions. Benefits are usually larger.

Politicians are reluctant to trim benefits and create political enemies, while CEOs have an incentive to cut costs.

Companies are not required to offer retirement benefits. In Texas, just 1 in 3 private-sector workers participated in a retirement plan in 2011, according to the Employee Benefit Research Institute. Only three states had lower rates.

Employers usually end pensions unilaterally. But union employees often have pensions through collective bargaining so any change has to be negotiated.

That required a strike and replacement workers at Lockheed. And it required Chapter 11 at American.

401(k) drawbacks

It’s not uncommon for healthy companies to freeze pensions. In the mid-2000s, IBM, Alcoa and Verizon were among those adopting some kind of freeze, according to Boston College.

Boeing ended its pension for nonunion hires in 2009. Yet its obligations continued to grow, as they did for most other plans, Milliman reported. In the three years ending in 2012, AT&T’s pension funding deficit doubled and Lockheed’s increased almost 50 percent.

The trend turned this year, thanks to a roaring stock market and slightly higher interest rates. Through November, the cumulative deficit for the top 100 pensions was $93 billion, down sharply from 2012.

Milliman projects better results next year and says the top 100 pensions, as a group, may be fully funded.

That’s not likely to stop the exodus, however. After companies reach equilibrium, they’ll be eager to protect against volatility, which may lead to more cuts.

On average, companies contribute less than half as much to a 401(k) as to a pension, Boston College said. At the same time, people often save less in their plans and earn less on their investments.

As a result, half of today’s households won’t be able to maintain their standard of living in retirement, the center said.

Like job security and a Christmas bonus, pensions are becoming a remnant of the past. [/EXPAND]