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Ruling Signals Need to Take Charge of Own Retirement Planning

Paul Spink’s pension problems stemmed from the fact that he switched jobs late in his career at a time when pension laws were looser.

But the former Lockheed designer’s loss in his U.S. Supreme Court case this week could have a dramatic impact on young workers as well as old, attorneys say.

In essence, the decision could make it easier for companies to take money out of pension trusts and thus raises the potential of smaller monthly pension checks for millions of future retirees--many of whom are just now starting their working careers.

“This case could potentially be a disaster for pension participants,” says Mary Ellen Signorille, staff attorney at the American Assn. of Retired Persons in Washington, D.C.

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“It’s very disconcerting given all this talk about retirement being the ‘quiet crisis.’ At least, until now, we thought that people who had defined benefit plans were in fairly good shape. But if this money all belongs to the employers, we might as well all go home,” she said. Defined benefit plans, although becoming less common than 401(k) plans, still exist for about 25% of the nation’s employees.

Although companies have always been able to take excess money out of pension plans that they calculate won’t be needed by future retirees, Congress has set some strict limits and penalties for such withdrawals. This week’s case allows companies, in effect, to use that pension money rather than their own cash to prevent potential worker lawsuits, whether they are about age discrimination, asbestos or anything else.

The issue began in 1979 when Paul L. Spink, now 78, was a military jet designer at Hughes Aircraft. He was about to vest in the pension plan when Lockheed Corp. approached him about a job, says Bert Voorhees, a civil rights attorney with the Pasadena firm of Traber, Voorhees & Olguin.

Spink was interested, but given his age, was worried about the pension. Lockheed officials told him not to worry--he could join their pension plan right away. Spink took the job and for four years received statements indicating that he was in the plan, Voorhees said. But when he turned 65, the pension statements stopped.

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Someone had made a mistake, Spink was told. He wasn’t in--and couldn’t join--the Lockheed pension because of his age. And because the people who recruited him were not pension officials, they were not liable for misleading him.

In 1988, Congress amended pension laws to bar companies from discriminating against older workers. However, the new law wasn’t retroactive.

So Spink was treated as if he was a new worker. When he retired in 1991, he got $84 a month--the pension for a worker who had been with the company for the 18 months after the 1988 law became effective. Had he been credited for his entire 11 years, he would have received $800 a month, Voorhees estimates.

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When Spink left, Lockheed, now Lockheed Martin Corp., offered to add six years to his retirement plan, if Spink would promise not to sue Lockheed--ever, for anything. Spink refused.

Two years later, he sued and charged that it was illegal for the company to use a retiree’s pension funds to protect itself from lawsuits--the effect of the offer they made him. He also said that Congress’ 1988 law, barring age discrimination in pension plans, was meant to be retroactive.

This week, Spink lost on both counts.

Specifically, the court ruled that the 1988 law is not retroactive. And, more importantly, they ruled that companies could use pension surpluses to pay enhanced pensions that are contingent on the worker signing away the right to press other legal claims.

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“Not only did the Supreme Court rip off Mr. Spink’s arm, they beat him over the head with it,” said Ronald Dean, a Pacific Palisades pension attorney. “They took his money out of the pension plan and used it to eliminate his other claims.”

To current retirees who have no legal gripes with their former companies, this may seem inconsequential. But pension experts maintain it’s ominous for younger workers, who may rely on pensions.

Why? By and large, a pension surplus can be as much a result of accounting optimism as reality. There may appear to be enough money now, but a future market correction or increased longevity could change the situation quickly.

Voorhees said if it is easier for companies to tap overfunding to eliminate the risk of future suits, more companies will do so and a greater number of company pensions could be put at risk.

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It’s important to mention that for most workers, so-called “vested” benefits are safe. That’s the portion of benefits that you’ve already earned from past years. That’s because the federal government stands behind vested benefits through something called the Pension Benefit Guaranty Corp., which pays benefits to set limits when a company with a defined benefit plan can’t.

What’s at risk are unvested and future benefits, because companies have the right to change their future pension promises. And if a company pension becomes underfunded, it’s far more cost-effective to reduce promises than it is to add money into a plan.

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Company representatives say that there is no reason to believe pensions will become underfunded as a result of Spink. Firms have no plans to use pension surpluses for nefarious purposes, said Stephen Bokat, general counsel for the U.S. Chamber of Commerce.

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However, lucrative buyouts and early retirement programs have been common for years and may remain so. In addition, it’s not unheard of--it’s not even unusual--for companies to change future promises to reduce their costs, he acknowledges.

So, on a personal level, Americans would be wise to consider the Spink decision as a signal to take retirement planning into their own hands, Dean said. Don’t rely on a company’s defined benefit pension to cover you, he advised. Save on your own, either through a 401(k), an IRA or some other vehicle. The younger you are, the easier it is to accumulate adequate savings, he adds.


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