Shield Traditional Pensions
New Treasury Secretary John W. Snow knows the satisfactions a top-notch pension delivers. Thanks to a deal approved by CSX Corp. directors, the former chairman is being credited with 44 years of service after just 25 years at the company. He is among a growing number of corporate bigwigs, including Tenet Healthcare Corp. Chairman Jeffrey Barbakow, who will walk away with pensions unlike anything their fellow employees will see.
Snow’s thoughts on pensions should interest Americans because one of his first tasks at Treasury is to oversee controversial changes to rules governing pensions for those “fellow employees” everywhere. The regulatory shift would remove restrictions on corporate use of pensions calculated by their cash value, not on promised monthly payments, and that are portable from job to job. Companies see them as a way to lure younger, more mobile workers as well as to cut soaring benefit costs, but older workers say it’s at their expense.
Streamlining of benefits is an inexorable trend and pensions that guarantee monthly income are in decline. But older workers who planned their lives on the basis of old promises should get what they were expecting.
The 75-page document (available at www.treasury.gov) that will be the subject of an April 10 public hearing in Washington is thick with jargon and hypothetical concepts. There’s nothing hypothetical, though, about the value of fixed pensions when the anemic stock market is tearing away the value of 401(k) retirement accounts. Traditional pensions grow noticeably in value during the final years leading to retirement, whereas cash-balance plans, which are portable from job to job, grow at a steady rate regardless of seniority. The problem comes in letting companies set a proper present value for an employee’s future benefits.
New Jersey resident Larry Cutrone is suing AT&T; over a pension change in 1997 in which he alleges the value of his pension fell to $138,000 from $350,000, reducing his annual retirement income from $47,303 to $23,444. That kind of travesty prompted a freeze on pension changes so the government could adopt rules to protect workers. The fair course would be to allow older workers to remain in existing pension plans or otherwise assure that benefits wouldn’t be cut. Treasury’s rules would do neither.
Before his confirmation Thursday night, Snow promised two key Senate Democrats to give the pension rules his “full attention.” At the height of the pension-eating Enron scandal, President Bush said: “What’s fair on the top floor should be fair on the shop floor.” Snow and Bush should remember that battle cry during the Treasury Department’s review of the country’s pension policies.
