Since the 1970s, their numbers have declined as employers turned to cheaper defined-contribution plans, such as 401(k)s. In 2007, about 21 million private-sector workers had defined-benefit plans versus 40 million in defined-contribution plans, congressional research found.
The plans hold key differences. Defined-benefit plans leave employers on the hook for most funding, benefit and investment decisions. Defined-contribution plans make workers responsible for most funding and investing. Studies have found that traditional pensions outperform 401(k)s. Yet 401(k)s are cheaper for employers to fund.
Over three years, for example, PremierWest Bancorp of Medford spent $2.1 million on a special retirement plan for a few key executives but only $1.3 million matching contributions to its 500 employees' 401(k) accounts, its annual report shows.
The bank, which received $41 million in federal bailout money in February, cut its 401(k) match in half July 1 to save money, chief administrative officer Tom Anderson said. Airlines suffer in decade Only two companies in the survey -- Bank of America Corp. and Schnitzer Steel Industries Inc. -- had more money in their plans than they owed to future and current retirees. Schnitzer froze its pension plan in 2006. FedEx's plan was funded through its fiscal year ending May 2008, but the value likely has declined significantly since then. An updated account of its pension status will emerge later this month. In February, the company suspended its 401(k) match.
Manufacturers and airlines, saddled with high labor costs and tight cash flows, have suffered from poorly funded plans most of the decade. Seattle-based Alaska Air Group Inc., which operates Alaska Airlines and Horizon Air, was 33 percent underfunded at the end of 2004 and 41 percent underfunded last year.
The fallout from the funding status already has prompted change: Nearly half of the companies surveyed have frozen benefit payments or closed the plans to new employees. Four of them -- Wells Fargo & Co., Louisiana-Pacific Corp., Portland General Electric Corp. and Boise Cascade Holdings -- took action this year.
PGE, whose outgoing CEO Peggy Fowler will receive annual retirement payments of $790,000, closed its plan Jan. 31 to control costs and remain competitive with companies that had done the same, company spokesman Steve Corson said. In place of a pension, PGE offers new employees enhanced 401(k) benefits that include a mandatory company contribution.
Corson noted that Fowler earned benefits under a separate executive pension plan that was closed in 1996. Companies downgraded their pensions' expected investment returns from 9.2 percent in 1998 to 7.6 percent last year on average. That still might be too optimistic: Since 1999, large corporate plans returned an average 3.3 percent on investments, according to Milliman. At least three companies -- Weyerhaeuser Corp., Boise Cascade and Allegheny Technologies -- have borrowed to help bolster their pensions.
Federal law allows companies time to recover losses before having to shore up underfunding. But accounting changes imposed by the federal Pension Protection Act of 2006 and the historic levels of underfunding will force companies to make contributions by late next year. Many are waiting as long as they can to do so, consultants said.
Macy's Inc.
