|
|
Tensions Rise as Pensions Fall
By Bennett Hall, Gazette-Times
August 9, 2005
Airline labor tussle highlights shift toward 401(k)-style plans
Armed with a degree in education, Corvallis native Sara Nelson Dela Cruz was poised to take a teaching job when she changed course, opting to become a flight attendant for United Airlines.
"I decided to come to United because the pay and benefits were better as a flight attendant than as a first-year teacher," she said. "The pension was a huge part of my decision."
That was nine years ago, when United was flying high. Now, after a period of serious financial turbulence, the nation's second-largest airline wants to take that pension away and replace it with a less expensive retirement plan.
It's part of a broader trend in American business. A growing number of U.S. corporations are abandoning pensions, which offer retired workers a fixed monthly payment for life, in favor of 401(k)s and other defined-contribution plans, tax-deferred investment accounts that both companies and employees pay into as workers build a nest egg for retirement.
The shift can make companies more competitive by saving them money. But that's small comfort for Dela Cruz, who works United flights out of Boston during the week and spends weekends with her mother in Corvallis.
She is concerned about her future — and she thinks other U.S. workers have cause to worry as well.
"It's bad because with a 401(k) or any defined contribution plan there is no guarantee of benefits," she said. "Once the money is gone, it's gone — and it's subject to the whims of the stock market."
Cost vs. benefits
United entered bankruptcy proceedings in 2002, and its flight attendants and other employee groups have agreed to a series of concessions to help the troubled carrier right itself. The airline's drive toward solvency got a major boost this summer when the government-backed Pension Benefit Guaranty Corp. agreed to take over $6.6 billion in unfunded pension obligations, a move that will cost United retirees an estimated $3.2 billion in promised benefits while assuring they'll get the rest.
Now the carrier has negotiated new contracts with its pilots, managers and ground workers unions that substitute defined-contribution plans for pensions. Management is pressing hard to get the Association of Flight Attendants to accept a similar deal for its 20,000 members who fly for United (including 262 Oregon residents).
But the AFA has drawn a line in the sand.
"We have not given up on saving our defined-benefit plan," said Dela Cruz, who serves as a union spokeswoman.
The airline is equally adamant.
"Termination and replacement of pension plans is necessary in order to obtain the financing we need to exit bankruptcy," United spokesman Jeff Green said.
Facing stiff competition from low-cost carriers — many of them unburdened by traditional pension plans — the airline has been forced to take drastic measures, Green said.
"We have been looking at all areas of the company where we can either enhance our revenues or cut costs," he said. "This was a difficult but necessary decision the company had to make."
The trouble with 401(k) plans
More and more companies are making the same decision.
"Traditional defined benefit plans — the ones most people think of as pension plans — are definitely on the decline," said Alicia H. Munnell, director of the Center for Retirement Research at Boston College.
In 1981, according to Munnell's research, 58 percent of U.S. workers with retirement benefits had a pension while 19 percent had a 401(k)-style plan. By 2001 those numbers had reversed, with 59 percent covered by a 401(k) and just 13 percent by a pension. (A small percentage of workers have both.)
The reasons for the shift are numerous, she said, but among the biggest are the investment and interest rate risks companies assume in funding pension plans.
Another factor is the growth of the mobile work force. While people who spend their whole careers with one company could expect a secure retirement with a traditional pension, it's hard to transfer those benefits when changing jobs.
Munnell believes the shift away from traditional pensions is inevitable, but she also thinks that, for most workers, 401(k)s and similar defined contribution plans are a poor substitute.
In the book "Coming Up Short: The Challenge of 401(k) Plans," Munnell and co-author Annika Sunden argue that such plans place far too great a burden for managing retirement accounts on employees, most of whom make bad decisions and wind up with far less money than they anticipated. The authors also note that less than half of American workers have any kind of retirement benefits beyond Social Security.
The book calls for changes to defined-contribution plans that would make participation automatic for all workers, minimize investment risk, adjust benefits for inflation and pay them out over time, rather than as a lump sum.
"They have not been as successful as people thought they would be," Munnell said of 401(k)s. "It could be a more successful experiment if we made those plans easier and automatic."
Keeping up the fight
At a total cost of $9.8 billion, United's pension default is the biggest in U.S. history, but it's not likely to be the last. Other major airlines are positioning themselves to follow suit, and some observers predict the auto industry could be next to renege on promised payments to thousands of pensioners.
In a bid to head off a potential wave of defaults, the U.S. House passed a six-month moratorium on any spending by the Pension Benefit Guaranty Corp. to terminate pension plans. Companion legislation in the Senate, however, failed to gain traction before the summer recess.
Now, with the prospect of legislative action fading, the Association of Flight Attendants is threatening a series of targeted strikes against United over the disputed pension plan. According to Dela Cruz, the stakes are high for flight attendants.
"Two-thirds of our members would lose over half of their pension benefit," she said.
And while the traveling public generally greets airline job actions with disdain, she said, passengers have been overwhelmingly supportive of preliminary leafleting campaigns about the pension fight.
"Their response is, ‘Good for you — how can I help?'" Dela Cruz said.
"It seems that the general public can really relate to the retirement issue."
|
|
