Pension funds pinched, stirring calls for reform

Millions of Americans, retired or getting close to it, now face questions about the health of their pension plans.

Large companies from IBM to General Motors Corp. are struggling to meet their obligations to retirees.

The reasons, in the view of experts, range from poor planning to a deep and surprisingly long bear market in stocks - in which pension funds invest.

Whatever the cause, a rainy day has arrived, and many companies are not prepared. Consider: Of the companies in the Standard & Poor's 500 index, 353 offer traditional pension plans, as opposed to voluntary savings plans for employees such as 401(k)s. Of those firms, at least 322 pension plans were underfunded as of mid-June. The total shortfall: $226 billion, despite this year's nascent stock market recovery.

Congress, among others, is taking note. Thursday, the House Education and the Workforce committee plans to consider ways to strengthen America's pension system and the federal agency that guarantees corporate plans.

The challenge represents a long-term threat more than an immediate crisis. An "underfunded" pension plan generally succeeds in paying retirees, even as the company scrambles to rebuild the fund to meet its long-term obligations.

But the sharp turnaround in corporate fortunes is worrisome, both at specific companies and in aggregate.

General Motors, for example, recently had to issue a stunning $13 billion in debt to bolster its pension plan. Such debts could make it harder to compete in the no-money-down world of automobiles.

"There's no way General Motors can eliminate all its deficit by selling cars," says Alicia Munnell, an expert at Boston College, noting that GM's pension funded is underfunded by $19.2 billion.

As recently as 2001 - and for all of the 1990s - the pension funds of the S&P 500 firms, taken as a whole, were fully funded. In 1999, their surplus exceeded $200 billion - as big as today's shortfall.

The reversal highlights a crucial factor in pension-fund success: investment rates of return. The bear market has shrunk the value of their corporate pension funds - overall, by nearly $1 trillion, leaving about $3.69 trillion in assets at the end of 2002.

While some experts urge far-reaching changes in the corporate pension system, most expect Congress to focus for now on more temporary measures, such as allowing companies to forecast a higher rate of return on their investments.

"It's all piecemeal, patchwork, finger-in-the-dike measures," complains A. James Norby, president of the National Retiree Legislative Network, a group representing millions of retirees of major firms.

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