Word: pensiones
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...Klein discussed why President Bush is taking the controversial position in favor of reforming Social Security [Jan. 24]. Although I usually agree with Klein, I take issue with his endorsement of private investment accounts for Social Security. Over the past quarter-century, most Americans have moved from traditional pension plans into retirement savings plans funded by employer and employee contributions. Those are private investment accounts, and all involve risk. Individuals own those accounts and manage them. At one time, the employer bore the risk and responsibility in a pension plan, but now the employee does. There are no guarantees...
...shares. Bejing in effect banned the sale of these shares, so the state would maintain corporate control. But in June 2001, at the height of the market bubble, the government announced that it would allow the sale of some "nontradable" shares and use the proceeds to fund a national pension scheme. Investors panicked, fearing a flood of new shares would drive down prices. Although the government quickly reversed its decision, the markets lost a quarter of their value in three months, and they have kept falling ever since. "Everybody still worries that some day the state will sell those shares...
Here's the scary part: you might think your pension is safe, but companies that offer pensions have collectively set aside $450 billion less than what they need to secure the retirement promises they have made. On top of that, the government fund that guarantees the benefits is swamped by recent failed plans; last year the Pension Benefit Guaranty Corp. ran a $23 billion deficit...
Traditional pensions may require a taxpayer bailout. If it comes to that, pensioners may get stuck with less than they expect. Already, there are limits to what the government will step in to pay. The maximum benefit for a retired 65-year-old in a failed pension is $45,614 a year. At that cutoff, 90% of those in plans taken over by the PBGC get full benefits. But in high-paying industries like airlines and steel--in which the biggest pension failures are now occurring--only 60% of pensioners get full benefits...
...pension system has been dwindling for years. Today there are just 29,600 traditional pension plans, down from 57,000 a decade ago. According to James Klein, president of the American Benefits Council, "the big question is being missed: What can be done to bolster the defined-benefit system" and preserve those plans that are left? Probably not much. Just this year, IBM stopped offering new hires a company-funded pension, joining firms that have shifted their focus to the 401(k). "It now has a politically acceptable feel, which argues for a continued decline in defined-benefit plans," says...