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Topics include:
*Intermediate Business Journalism
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Stories that cover the shrinking number of dollars for people with a shrinking number of working years will, I guarantee, never suffer from a shortage of loyal readers.
As business headlines increasingly question the future of Social Security and pensions, citing words like "crisis" and "underfunded," the country's largest retiring community -- our beloved Baby Boomers -- desperately read on to see how they'll be affected.
Pensions, in particular, are getting a bulk of the attention. This topic, once relegated to unread employment contracts and human resources convention panels, is now crossing the congressional threshold and advancing directly into the public spotlight.
That combination could turn stories into politically spun overreactions. But business reporters should opt instead for bigger-picture, longer-term analyses of the pension problem's causes and consequences -- and then tell those stories through the voices of regular people.
This is not a story just about United Airlines and its new legacy as the country's biggest pension defaulter so far. It's about what has led to an 11 percent rise this year in companies backing away from pension plans and what that means to future generations of workers -- to their livelihoods and lives.
"Some participants or their survivors may see benefits reduced by half or more," said Bradley D. Belt, executive director of the Pension Benefit Guaranty Corp., the federal agency that inherits pensions that companies can't pay, in testimony last week before a House transportation subcommittee. "That is the real tragedy of the current system of flawed funding rules."
Belt hit the nail on the head. Real people are suffering as a result of quite a bit of financial inadequacy. Be wary of the folks explaining that inadequacy away, from politicians to comptrollers controlling the pension funds.
"When this arcane, godlike stuff is handed down (from sources), you just start beleiving it more than you should," says Nancy Webman, editor of Pensions & Investments, a trade publication owned by Crain Communications. "Be skeptical of anything said and done by elected officials about pensions. A lot of it is posturing."
How pensions have fallen into the deficit ditch requires a longer explanation than what many of those "officials" would like to admit. But your readers deserve that version.
Some of it, we can blame on the tech boom, says Richard C. Ferlauto, director of pension and benefit policy for the American Federation of State, County and Municipal Employees.
It encouraged companies to take a "holiday" from contributing their share to pension funds since their initial investments were doing quite well on their own. The subsequent tech crash tragically brought those companies, and their pension funds, back down to earth. Today, companies are complaining about higher payments into their pension plans, but probe those complaints. Did that company take such "holidays" in the past?
Sometimes, the villain is a percentage that companies must include in a footnote to its annual report. That's the rate of return they expect on their pension investments. During the tech bubble, those rates soared to a wildly optimistic 9 or 10 percent. If you still see that same rate in the pension footnote today, don't believe it. You're not getting that kind of return on your personal savings accounts or CDs. The companies aren't seeing it in their pension funds either, and don't let them convince you otherwise. "It's all smoke and mirrors," Webman warns.
That's overconfidence. Then, there's plain irresponsibility. In the high-tech days of high-flying funds, companies would often borrow from their pension funds for other expenses. So again, less money was directed where, nowadays, it may be needed most.
Plus, Ferlauto says, during the season of salary reviews, employees would often ask for a 2 percent hike in corporate pension contributions in lieu of a raise. That further skews a company's funding formula -- already a mathematical conundrum -- and ends up escalating the dollar amount that the company later can't pay into the fund.
To make revenue-related matters worse, companies were dealt a financial blow from the recession after corporate scandals. After WorldCom and Enron, Ferlauto says, public pension systems lost $300 billion in a total asset base of $2.7 trillion. That's a lot of people's hard-earned retirement savings.
Now take a look at all of those people. Depending on who they are, "underfunded" may not be as dirty a word.
The payout of pensions is based on a formula that calculates the number of years someone has already worked and will likely work. Simply put, the more time on a job, the more time for money to pile up. So a 25-year-old newbie's pension should be underfunded. And if a majority of today's workforce is 25-year-old newbies, then a fully funded pension would be nothing short of a marvel.
"An unfunded liability doesn't mean anything unless there's an understanding of the age of the work force," Ferlauto says. "It's like buying a house. You're not expected to put in all of your money for the house at one time. But when you're 60 and about to retire, you don't want to have 95 percent of it be unpaid."
Trouble is, we're facing many, many folks who are 60 and about to retire. So the current pension situation still seems pretty dire -- especially for the average worker, who unlike a top executive, doesn't share the nice perk of multimillion-dollar bonuses.
Ferlauto estimates that the average person takes home $12,000 to $20,000 each year in pension funds. That's after a quarter-century of working for $30,000 to $50,000 a year.
We may read splashier headlines about the CEOs heading home with colossal pay and pension packages (i.e., this MSN Money story) -- and that's certainly a story if the company is simultaneously knocking on federal agency doors, begging for a bailout. But don't ignore the everyday worker's story either. That's often more telling of how deeply the pension cuts will hurt.
To measure that pain, look five, 10 or 20 years into the future. Webman believes the pension system is dying altogether, regardless of what bills Congress squeezes out in the next several months. But also look beyond pensions. With various retirement pay on the chopping block and rising home costs strapping savings, future retirees could find themselves in the poorhouse.
"For the biggest generation yet to retire, people are living on credit," Ferlauto says. "They don't have any savings. Social Security is to be dismantled. That means they won't have anything left."
But it leaves business reporters with plenty of stories.
Ferlauto's and Webman's Suggested Sources for Covering Pensions
Copyright © 2008 Donald W. Reynolds National Center for Business Journalism
Also, you need to look at worker's pensions vs. pension funding for the CEOs. They are two different approaches.
Posted by: Bob | July 5, 2005 10:32 AM