Retirement at Risk: A Daunting New Reality-Investing

Retirement at Risk: A Daunting New Reality

A Daunting New Reality

When the weather's good, Ed Beltram heads to the golf course near his Colorado Home almost every day. Most of the time, though, he isn't there to play a round. Instead, the 59-year-old retiree is scheduling tee times for others, washing golf carts and manning the counter in the pro shop. The $7.50-an-hour job has some perks: As an employee, Beltram gets to golf for free, a $45 savings every time he hits the links. Still, it's a job. And after 31 years of working at one company to earn what he thought would be a comfortable retirement, he never expected to be punching a clock.

It isn't what Sherry Beltram, 57, envisioned either. "It's so disappointing that he even had to consider going back to work," she says. Unfortunately, neither she nor Ed saw any choice -- not after his 401(k) lost $250,000 in what felt like a flash, and the company he'd worked for almost his entire adult life suddenly stopped subsidizing the couple's health insurance premiums.

It seems everywhere she looks, Sherry Beltram -- without an income or pension of her own and still several years from tapping Social Security -- runs up against a daunting new reality. Her husband washing golf carts instead of driving them. Her 81-year-old father watching his employer of 43 years drop the death benefit that was to help support his wife if he left her a widow. Her 33-year-old son moving from job to job over the first ten years of his career in the high-tech sector, unable to save a dime.

For millions of current retirees -- and for the 78 million baby boomers who will eventually stop working -- retirement has become almost a fantasy, not a life stage you plan for. One example: More and more private companies can't meet their obligations to those aging out of the workforce. In 2003, 155 underfunded private pension plans were taken over by the federal Pension Benefit Guaranty Corporation (PBGC). In 2004 that number rose to 192. The surge is threatening the safety net for those who thought they had rock-solid benefits coming. For those who've never had traditional pensions to count on, shrinking 401(k)s and the issue of Social Security's long-term solvency make for an even bleaker outlook.

"We worry about my parents and we worry about our kids," Sherry Beltram says. "Will we be able to help them out if they need it?"

Ed Beltram still draws a decent monthly pension, but he and other retirees have begun to question how much security they've got. And why not? They've seen the foundation they thought they'd built for their later years being chipped away. They worry about Social Security's prospects. They feel betrayed by changes to retiree health care coverage. They fear ex-employers may go bankrupt or merge with less-friendly companies, putting their pensions at risk. They read about new accounting rules that could make it harder for companies to meet their pension obligations in the future. And they worry that the PBGC may not be able to keep up with the demand.

Three years ago, Ed Beltram retired from Lucent Technologies, a communications company spun off from AT&T in 1996. Beltram had been with AT&T and Lucent nearly his entire career, mostly in Oklahoma City as a human-resources manager in a factory making telecommunications switching gear.

In its first years, Lucent was a Wall Street darling. Its stock kept climbing, making plenty of investors rich and fattening the 401(k)s of many employees -- Beltram included. By 1998, he and his wife, reassured by their healthy nest egg, took the first steps in their retirement plan.

They'd always dreamed of living in the mountains, so Beltram took a job in Lucent's Denver office and the couple built a Home in Woodland Park, about 25 miles from Colorado Springs. The three-bedroom ranch house sits high in the hills, surrounded by pine trees, with a view of Pikes Peak. The $650 mortgage payment is a lot more than the $151 they'd been paying on their Oklahoma City house, but between the pension they'd be receiving and their 401(k) savings, they didn't think they'd be stretched too thin.

More Bad News

Then the bubble burst. Between 1999 and 2002, the per-share price of Lucent stock plummeted from more than $64 to just 58 cents. Beltram, whose 401(k) was heavily invested in company stock, estimates his losses at $250,000. By 2001, the company was trying to cut costs by offering attractive early retirement packages to employees. Beltram took advantage of an offer that added five years of service to his pension calculation, boosting his monthly benefit check to $4,467. As an extra sweetener, the company agreed to cover 90 percent of health insurance costs for those who retired then -- and their spouses -- but only half for those who continued working. The Beltrams decided the offer was too good to ignore. "The main incentive was health care benefits," Beltram says. "We'd seen how health care costs were rising, and we wanted to be protected."

After Beltram retired, the couple got more bad news. Lucent eliminated the health insurance subsidy for spouses. The Beltrams' monthly premiums rose from $42 in 2001 to $516 in 2004. The extra $5,688 a year doesn't mean the Beltrams can't keep a roof over their heads, but it leaves them with less discretionary cash in their budget. Beltram's job at the golf course helps fill in some of the gaps.

Sherry Beltram's father, Bob Rockel, is in a tougher spot than her husband. In 1989, Rockel retired from his job as a shop-floor supervisor at the same Oklahoma City plant where Ed worked. He'd been there for 43 years. One morning a few years ago, he and his wife, BettyAnn, were sitting around the kitchen table and going through the mail. BettyAnn opened an envelope from Lucent. Inside was a notice informing the couple that the company was ending its death benefit -- an amount equal to a retiree's annual salary at retirement and payable to the spouse if the retiree died first. Just like that, the Rockels had lost $52,000.

"They left us high and dry," says Rockel, adding that if he'd known earlier that Lucent would yank the benefit he would have bought a life insurance policy. Now, he says, he and his wife are too old for an affordable policy -- and too old to go back to work as well. "I don't think anybody wants a 79-year-old working," adds BettyAnn, who was employed as an administrative secretary for 10 years when her children were in college and draws her own small pension. So they carry on, minding expenses and hoping for the best. But, BettyAnn says, they're scared: "In the back of your mind you're always wondering what's next. If they can do this, what else can they do?"

Lucent spokeswoman Mary Ward confirms that the company has stopped subsidizing health care coverage for some retirees' spouses, calling it just one of many "very tough choices."

"We had to make some very difficult, but unfortunately necessary, decisions to remain a competitive player in the telecom industry," she says, adding that the rising cost of health care is a national issue, not one confined to Lucent.

There was similar reluctance to dropping the death benefit for supervisory employees like Rockel, adds Ward. Yet, "providing a death benefit is unusual, and most companies long ago eliminated death benefits from their retiree plans."

While they don't have concrete reason to worry, seeing their other benefits vanish has the Beltrams and Rockels questioning how solid their Lucent pensions are. Given the steady increase in companies defaulting on pension obligations -- and with the PBGC posting a record deficit last year -- their anxiety is understandable. The agency isn't in immediate danger of defaulting on pension payments it must cover, but some watchdogs argue that it must increase the amount it charges employers to guarantee their pensions -- or face trouble.

Against this backdrop, many retirees have banded together to try to protect their interests. As the communications director for the Lucent Retirees Organization, for instance, Ed Beltram writes members of Congress about the health benefit changes and has lobbied Lucent -- so far unsuccessfully -- to audit its pension trust fund to reassure skeptics among its 125,000 retirees. Bob Rockel attends monthly meetings of a group of Oklahoma City Lucent retirees called the Telephone Pioneers, and is considering joining one of three pending federal lawsuits aimed at restoring the death benefit.

As for the younger generation, the Beltrams' 33-year-old son Dustin has no pension to protect. A designer of interactive software for a company in San Jose, California, he's worked for half a dozen companies since graduating from college. Only one offered a pension plan; the others had 401(k)s. Hampered by waiting periods and vesting schedules, Dustin had saved just $1,200 in a retirement account over ten years, and had to cash that in for an urgent car repair.

Even if the plans had made it easier to save, Dustin says he couldn't anyway. He and his wife, Bridget Dolan, laid off from her job as a Web designer last winter, expect their first child in March. They're trying to pay down high-interest credit card debt and start a college fund for the baby. To reduce expenses, they sold their house in November and moved into a rental.

Worry is the Rule

Ed and Sherry Beltram worry about Dustin and his brother, Cody, 30. Knowing their children haven't been able to put money aside, in 2001 the Beltrams bought a life insurance policy that will pay the boys a combined $1.5 million when Ed and Sherry die. The annual premium: $21,000.

To afford this and other expenses, the Beltrams budget carefully. They used to love going out to dinner. But when Ed turned 59 last fall, they celebrated with lunch instead at The Cliff House, a four-star inn and restaurant in nearby Manitou Springs. (Lunchtime entrées were about half the price.) They need a new car, but can't afford one right now. "We were hoping for retirement to be a time of comfort and ease," says Sherry. "Not to live high, but not have to worry about what would happen next month or next year."

Worry is the rule in the Beltram family. When it comes to his retirement, Dustin knows he's on his own. "I don't really expect Social Security to be there," he says. "And especially after seeing what happened to my dad, I know I can't count on a company to take care of us." Once the baby is born and the family pays off some of their debt, Dustin hopes to come up with a retirement strategy. For now, his plan is simple: "I'm basically expecting to work until the day I die."

Pension Primer: What you need to know
"Defined contribution" plans -- such as 401(k)s -- that shift most of the responsibility for investing retirement savings to employees are the norm now. But some 23 million U.S. workers and retirees still count on income from traditional, or "defined benefit," plans like the one under which Lucent pays Ed Beltram a fixed monthly sum. If such a plan is available to you, determine how long you must work before you're eligible for vesting in the plan and when you can take those benefits. Keep track of your benefits via two documents available from your employer: the "summary plan description" and "individual benefit statement." You should also review the plan's annual financial statements.

Companies can't cut or end benefits you've already earned under a defined benefit plan, but they can revise the rules for benefits earned in the future. They can also close a plan entirely. To learn more, go to Pension Rights Center, Pension Benefits Guarantee Center, or try a Labor Department site.

All Eyes on IRAs
If you have retirement savings in an IRA -- or might roll 401(k) or pension savings into an IRA -- pay attention to a case before the U.S. Supreme Court.

At issue: Should IRAs be shielded in a bankruptcy as other forms of retirement funds (pensions, 401(k)s, Social Security) are? The question turns on whether IRAs are savings accounts, not protected in bankruptcy, or retirement accounts, which are. IRAs fall into a gray area since they allow withdrawals (subject to tax and a penalty) before age 59 ½. The stakes are high: Over 45 million households have some $3 trillion in IRAs -- and personal bankruptcies have reached record levels.

The case, which the court should rule on by July, involves an Arkansas couple who put $55,000 in pension and 401(k) funds into an IRA and later declared bankruptcy. The justices will decide if IRAs deserve equal protection.

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