Audio Private pension plans in Minnesota coming up short (story audio) Photos Northwest workers ponder the future Gaworski sees more mistakes than ever Resources The Milliman USA pension fund survey Joe Gaworski's Pension Benefit Verification Service Your Voice Join the conversation with other MPR listeners in the News Forum.

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Private pension plans in Minnesota coming up short
by Jeff Horwich, Minnesota Public Radio
July 13, 2003

Northwest Airlines groundworkers listen to speakers at a recent union event. According to a new survey the pension plan at Northwest is among the most underfunded in the nation. But many Minnesota companies wondering how to shore up pensions battered by the bear market. (MPR Photo/Jeff Horwich)

Across the country, corporate pension plans are in trouble. The plans many companies set up to provide for workers in their retirement don't have the money they'll need to keep that promise. Many pension plans in Minnesota are suffering along with the rest. Experts say in most cases, there's nothing to panic about, but there are good reasons for employees and investors to pay closer attention.

St. Paul, Minn. — Like 401(k) plans, many traditional pension plans are heavily invested in stocks, and the market's three-year fall has badly depleted their resources. Unlike 401(k) plans, it's the employer, not the worker, who absorbs the impact of those investment losses.

The consulting firm Milliman USA recently analyzed the pension plans at 100 of the nation's largest companies, and found 87 of them don't have the money they'll need to pay retirees what they've promised. At the end of 2001, the pension plans Milliman studied had a small surplus. By the end of last year they were $157 billion short.

Know your plan, know what's there ... When you're young, you don't really think about retirement because you've got 40 years or more to go. But as you get older some of that stuff creeps up on you. - Dick Dolan, pension rights counselor

Study author John Ehrhardt says it's a big switch from the 1990s.

"Where companies were looking at pensions being an income producer, they're now looking them as an expense," Ehrhardt says. "You're seeing these (companies) that went 10 years, maybe longer, without having to make a contribution to the plan, now for the first time in five, maybe 10 years they're having to make a contribution."

These contributions can deal a direct hit to investors, and to companies' operations. Cash that could have gone toward profits, employee raises or research and development will go instead to shore up pension funds.

Three major Minnesota corporate pensions plans were included in the Milliman USA survey. Of the three, the pension fund at Northwest Airlines is in the worst shape, with only 48 cents for every dollar they have promised retirees down the road. 3M's pension has 79 cents on the dollar, slightly below the average in the study. Xcel Energy's plan remains fully funded, but has lost almost all of the 63 percent surplus it enjoyed only two years ago.

The study also finds Northwest and Xcel are projecting investment returns of more than 9 percent. This is above a recent guideline issued by the Securities and Exchange Commission, which says it will scrutinize company financial statements that use overly optimistic pension assumptions. Companies that cannot justify a rate-of-return of more than 9 percent may need to restate earnings.

Northwest, 3M, and Xcel all declined to discuss their pension plans with Minnesota Public Radio.

Retirees with traditional "defined benefit" pensions do have some protections. If a company or pension plan collapses, the federal government guarantees pension payments up to $44,000 a year, per retiree. But companies can scale back pension benefits not covered by union contracts. Lance Burma, a Milliman USA actuary in Minneapolis, says many small and mid-sized Minnesota companies he works with are eyeing pensions as a place to cut costs.

"Anybody who is working at a company that has a defined benefit plan should be aware of the fact that the defined benefit plan can be changed going forward," Burma says. "The situation right now is such that many companies are having to take a look at that."

	Gaworski sees more mistakes than ever

Another Twin Cities actuary has noticed companies are making more errors in pension payments. Joe Gaworski left the corporate world to begin the Pension Benefit Verification Service, which helps individuals who think they may be getting short-changed. Whether by design or just because companies' pension offices are overworked, Gaworski estimates that nationwide one-quarter of pension calculations now contain a significant mistake.

"There's a lot of pressure to move a lot of calculations in a hurry, and things can fall through the cracks," Gaworski says.

Dick Dolan, a counselor at the St. Paul office of the Pension Rights Project of the Minnesota Senior Federation, says workers of all ages need to be vigilant. Dolan is a pensioner himself, as a retired office manager for 3M. Dolan says with companies reexamining retirement benefits these days, workers should do the same.

"Know your plan, know what's there, know what your rules and regulations are," Dolan says. "When you're young, you don't really think about retirement because you've got 40 years or more to go. But as you get older some of that stuff creeps up on you."

Though the comfortable pension surpluses of the last decade are unlikely to return any time soon, the recent stock market rally may ease the pressure on corporate pensions. The Bush administration also proposed last week relaxing certain pension accounting rules. A congressional hearing on the plan is slated for Tuesday, amid concerns from both business and labor groups.

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