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How Corporate America is stealing our future
The great retirement robbery

August 9, 2002 | Pages 6 and 7

WHEN THE telecommunications giant WorldCom went under, CEO Bernie Ebbers walked out the door with $20.4 million. And that's not counting the $10 million retention bonus that he received in September 2000--on the condition that he stay with the company for two years.

Ebbers didn't quite make the deadline, but then again, neither did WorldCom. So Ebbers kept the bonus.

Lisa Brown didn't make out so well. Like thousands of former WorldCom employees, she found herself not only without a job, but without the retirement savings promised to her.

Brown, who worked a decade as telemarketer for the long-distance company MCI, now a part of WorldCom, said that she took Ebbers' advice and invested all of her retirement contributions in company stock. She watched the value of her 401(k) retirement account drop from about $45,000 to $210.

Corporate America is stealing workers' futures. Sometimes it's the smash-and-grab. Like at Enron, where workers were forced to keep their retirement savings in company stock, while the executives were able to cash out before share prices collapsed. But for millions of others, it's been a slow bleed.

And today, more and more workers who had hoped to enjoy a comfortable retirement are dealing with the fact that they may have to work until they die. ELIZABETH SCHULTE takes a closer look at what it means to retire.

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THE REALITY of growing old in America is a far cry from the dream advertised in retirement magazines--long walks on the beach, time to spend with family and friends. Try this more realistic version: a mountain of health care bills, dwindling savings and working as long as your health allows.

After declining for most of the 20th century, the retirement age in the U.S. has risen over the past decade. Today, a quarter of 60- to 69-year-olds are working, up from a fifth in 1991. The reason is simple: People don't have enough money to retire.

According to a recent study by New York University economics professor Edward Wolff, the retirement assets of the bottom 70 percent of the U.S. population are 13 percent lower now than in 1983. In the same period, the stock market increased 10 times over. As Wolff told Business Week magazine, "I was surprised, because I thought that the 401(k) revolution would have been very beneficial for the vast majority of workers." Guess again.

Over the last two decades, the 401(k) has increasingly become the retirement plan that more and more workers rely on. A 401(k) is a form of retirement plan in which employees are responsible for managing their own pensions, though employers voluntarily contribute matching funds or stock. The logic of the 401(k) is that all of the risks--from a decline in the stock market or the decision of an employer not to provide matching funds--fall on the shoulder of employees.

"ALL OF us regarded the 401(k) plan as a way of investing our hard-earned wages for future security. And we assumed that, in matching our contributions, our employer was giving us something of value. It all now appears to have been a cruel illusion. As a result, retirees are finding their nest eggs gone; older employees are facing having to work much longer than they had intended; and younger workers are being forced to revise their financial and career plans."
--Robert Vigil, a 23-year veteran of Portland General Electric, testifying before Congress in December

The 401(k) has increasingly replaced traditional defined benefits plans, like pensions, which guarantee a monthly income to retirees. Two decades ago, more than 40 percent of private-sector employees were covered by company-financed pension plans, according to the Department of Labor. Today, only 20 percent are.

Over the same time frame, the percentage of workers who rely on 401(k) plans went from an insignificant fraction to 33 percent. The justification was that a 401(k) gave workers the opportunity to get in on the wonders of the stock-market boom--and wheel and deal their way to a comfortable retirement.

In The Great 401(k) Hoax, authors William Wolman and Anne Colamosca say that the great illusion of the 401(k) is that it was "a device that made it easy for the average worker to participate in the greatest boom in history." But the truth is very different. Working-class people don't make a killing off the stock market. It makes a killing off them.

As Yale economist Robert Schiller told Wolman and Colamosca, "401(k)s and similar plans are designed to give ordinary people economic security in retirement by encouraging them to mimic the portfolio strategies long pursued by the wealthy. But little attention is usually paid to the fact that the wealthy…have less to worry about losing substantial amounts in a market decline."

The difference is clear in the numbers. Among people with 401(k) plans who count themselves in the top 30 percent of the population in terms of income, total retirement assets have increased 77 percent since 1983. For the 70 percent at the bottom, retirement savings have declined by 11 percent. For this bottom 70 percent, the average total savings for old age is $29,000, according to Wolff.

The recent corporate scandals involving corporations that faked their financial situation to keep their stock price inflated show just how vulnerable workers are when they "invest in the future." WorldCom employees, unlike workers at Enron, weren't forced to buy company stock and keep it. But many naturally did--and suffered for it. The total amount of retirement savings lost by former WorldCom employees is at least $1.1 billion during the past three years.

Many of the Enron employees who saw their retirement plans disappear had huge amounts invested in 401(k) accounts because the company grew so quickly in the 1990s. But the Enron collapse leveled plenty of people who would have had to scrape by.

For example, in March, members of International Brotherhood of Electrical Workers (IBEW) Local 125 traveled from Oregon to Washington to tell their 401(k) rip-off story.The members worked for Portland General Electric (PGE), which was bought out by Enron in 1997. When Enron's stock went south, so did the IBEW members' 401(k) plans.

"Here it was, the 10th-largest company in the United States," testified Donald Eri, who retired in April 2001 after working for PGE for 33 years. "Its top executive, Ken Lay, was a personal friend of President George Bush and Vice President Dick Cheney. Its directors were prominent people, with valuable political and industrial ties. They were all making huge amounts of money, apparently off of a highly successful company…We took pride in what we did. We worked in all kinds of adverse weather conditions for days at a time without rest to make sure that Oregonians had light and heat when they needed it. And this is how we get paid back."

Enron's message to workers was: You're on your own. And corporate bosses everywhere agree. After all, 401(k) plans are half as expensive for companies as offering workers a real pension. As is the case with the rising amount that employers expect workers to pay for health care, the bosses are passing on the cost of retirement as well.

The effects are even more crippling for the one-third of working Americans who make $8 an hour or less. While they can work, they barely scrape by. But when they're too old to keep up, they're plunged into appalling poverty.

Corporate America couldn't care less. Nor could the bosses' servants in Washington, who would rather spend money on bombs than a strong social safety net.

The resources exist to give every single senior a comfortable retirement and much more. But this will never happen if Corporate America is allowed to keep putting its profits before our most basic needs.

Gambling pensions on Wall Street

How seniors scrape by

--The median annual income for the elderly in 2000 was $19,168 for men and $10,899 for women.

--Some 3.4 million elderly people--or 10.2 percent of the senior population--lived below the poverty level in 2000.

--Another 2.2 million--or 6.7 percent of the elderly--were classified as "near-poor" and live just above the poverty line.

--Elderly women had a higher poverty rate: 12.2 percent.

--Between 1990 and 1999, the elderly's out-of-pocket health care spending increased by more than a third, averaging $3,019 a year.

IF SOMEONE told you that they were betting their life's savings at the racetrack, you'd call them crazy. But that's what many state pension funds are doing.

The California Public Employees' Retirement System, or CalPERS, is the largest pension fund in the U.S., worth around $150 billion. CalPERS handles the benefits of some 1.3 million state and local employees, largely through stock investments. It had 23 million shares in WorldCom. When the share price tanked, the system lost about $565 million.

CalPERS isn't the only pension fund that has been hit:

--The New York state pension fund is close behind California, with a loss of about $300 million after WorldCom's collapse. Over the past year, the New York fund lost $75 million on investments in Global Crossing; $58 million on Enron; and about $5 million on Adelphia.

--Michigan's pension fund lost about $116 million to WorldCom.

--Florida lost upward of $90 million in pension money to WorldCom--after losing an estimated $300 million on Enron.

And it looks like CalPERS, which has long had an image of honesty and integrity, may have some financial skeletons of its own. The Associated Press reported last month that five of CalPERS' 13 board members owned stock in companies where the pension fund was an investor.

In addition, three board members--San Francisco Mayor Willie Brown, State Treasurer Phil Angelides and State Controller Kathleen Connell--received campaign contributions from companies that CalPERS invested in. In one case, CalPERS invested $760 million in a company after its founder arranged more than $100,000 in contributions to board members.

When news of the WorldCom stock losses was announced, CalPERS spokesperson Brad Pacheco assured reporters that $565 million was a relatively small amount for such a gigantic fund. But is one penny of workers' retirement worth gambling on this insiders' game?

Don't let Washington wreck Social Security

IT TOOK the Great Depression of the 1930s and a huge upheaval from below for the U.S. government to finally create a federal retirement insurance plan. In 1935, the Roosevelt administration passed the Social Security Act, which guaranteed regular benefits based on what retirees make over the course of their working lives.

From the very beginning, limits were placed on what Social Security could do. Under pressure from the American Medical Association, the administration agreed to leave health care out of the retirement package.

Compared to other industrial countries--many of which instituted government pension plans decades before the U.S.--Social Security is pathetic. For example, in Germany, retired workers get 75 to 85 percent of their income from the public retirement system. In the U.S., Social Security is seen as a supplement to what "conscientious" workers save on their own.

In addition, the Social Security system unfairly penalizes workers who make lower wages, because benefit levels are based on lifetime earnings. This is why Social Security discriminates against women, who make less than men. Similarly, unmarried women--compared to married ones who have the option of basing their benefits on their husbands'--are also penalized.

And those are problems with the existing system. If George W. Bush and the Republicans get their way with proposed "reforms," Social Security will become a disaster. Next year, legislation passed in 1983 will raise the eligibility age for Social Security benefits from 64 to 67 years old. Republicans today are floating the idea of raising the eligibility age to 70.

And the Bush gang is still talking about privatizing Social Security--putting our futures at the mercy of the Wall Street sharks. This is a recipe for Social Insecurity--and we have to say no.

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