Quiet Retirement

Article excerpt

Social Security and pension reform: Heard much about these issues during the campaign? No one has.

IN MONTHS LEADING UP to the election, President Bush and John Kerry sparred over lots of things: the war on terrorism, jobs, taxes, gay marriage, stem-cell research. But they ignored one issue that will be critical for whoever takes over the White House in January: how to ease America's aging population into retirement without bankrupting the country in the process.

With the oldest baby boomers nearing 65 and experts forecasting impending insolvency for government entitlement programs, reforming Social Security and regulations covering company pensions never seemed more urgent. Yet the candidates have remained all but mum on the subject, reluctant to tackle something so complex, long term and potentially explosive during the campaign. "It's hard stuff. It doesn't lend itself to easy sound bites," says Judy Schub, managing director for the Committee on Investment of Employee Benefit Assets, which represents 15 million employees in 110 corporate pension funds.

But tackle it they must. The first wave of 79 million baby boomers starts retiring four years from now. As more people stop working, the ratio of individuals paying into Social Security for each retiree collecting benefits will drop, from 3.3 to 1 today, to 2 to 1 by 2030, according to Social Security administrators. By 2018, Social Security won't collect enough in payroll taxes in a year to cover annual benefits. By 2042, money pledged to the program's trust funds will run out completely, according to a Social Security trustee report published in March.

Pension funds face their own problems. A record 35 million Americans and their families are covered by defined-benefit pensions, according to Schub's group. But despite stock prices that have rebounded from 2000 lows, many plans remain underfunded. The liabilities, along with United Airlines' August announcement that it will likely terminate its pension plans as part of a bankruptcy restructuring, have put pressure on the Pension Benefit Guaranty Corp., the government agency that insures pensions for 44 million U.S. workers. That, along with uncertainty about proposed regulations and age-discrimination lawsuits over hybrid cash-balance accounts, is causing companies to turn away from defined-benefit plans. Instead, they're offering more portable defined-contribution plans, putting more of the onus of investing retirement money on employees. Some are dropping pensions altogether.

Corporate and employee-group lobbyists, academics and other observers say there's no question that changes are needed. But the shape of the reforms, how quickly they'll happen and the effect they'll have on corporate America could be very different under a Bush or Kerry administration, industry watchers say.

The candidates' silence on retirement reform doesn't mean they haven't taken a position. Bush has pledged that, in a second administration, he would privatize Social Security, though he prefers to call it giving people "ownership." He might raise the retirement age, according to experts and statements he has made during the campaign. Bush is also expected to continue working on pension-plan regulations introduced during his first term, including rules governing cash-balance plans and new measures for calculating pension-plan liabilities.

By contrast, Kerry has vowed not to privatize Social Security, cut benefits, raise the retirement age or increase the current 12.4 percent Social security payroll tax. Instead he'd shore up the program by cutting the federal budget deficit and growing the economy, though he hasn't specified how that would happen. According to industry watchers, statements Kerry has made during the campaign, and materials on his official election Web site, www.johnkerry.com, he also supports laws keeping defined-benefit and defined-contribution plans strong, and protecting older workers from unfair treatment under cash-balance plans, though again he's been fuzzy on the details. …

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