The traditional pension plan is in its twilight. The number of Americans covered by pensions that promise fixed monthly payments until death has been essentially unchanged for more than 20 years.

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DALLAS — The traditional pension plan is in its twilight.

The number of Americans covered by pensions that promise fixed monthly payments until death has been essentially unchanged for more than 20 years, while 401(k) accounts have mushroomed.

And the decline in traditional pensions is beginning to build on itself, many experts say, as more companies realize that for competitive reasons, they don’t need to offer them, or can’t.

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In place of pensions, more workers must build their retirement security on self-directed plans such as 401(k)s, taking over the responsibility — and the risk — for investment decisions once left to professional money managers.

Whatever the merits of that shift, experts say, the trend is clear and won’t be reversed. As new companies are launched, virtually none offers a pension.

“I refer to it as a dinosaur, and we’re near the end of the paleontological period,” said Stephen Skonieczny, a partner in the employee-benefits group of Dechert, a New York law firm. “Their number is coming up.”

The forces battering the traditional pension are numerous.


Pension facts




114,396:
The number of private-company pension plans in 1985.


31,135:
The number in 2003.


0:
Estimated number of plans created in the past decade.


44,000,000:
The number of Americans covered by the pensions in 2003.

Source: Pension experts; Pension Benefit Guaranty Corp.

The Dallas Morning News


Changing employment trends, rising costs for administering the plans, Wall Street’s demand for ever-increasing corporate profits and battered investment assets all play a role. So does Americans’ longevity, as companies find their pension plans paying benefits for retirees 20, 30 or more years deep into retirement.

The decline of the pension also finds a political echo in Washington, where the Bush administration pushes its vision of an “ownership society.” The White House backs the idea of private retirement accounts to partially replace Social Security.

No guarantees

Ultimately, experts say, even employees in healthy industries should be prepared for the possibility their company will get out of the pension business and distribute the plan’s assets to employees and retirees.

That troubles many experts, who say such a shift would carry massive ramifications for retirement security that are little understood.

The main worry is that without benefits that continue until death, some retirees will run out of money and die in poverty, the very problem that spurred the creation of pensions and Social Security.

The first private pension plan in the United States was established in 1875 by American Express.

“There were a few companies which blazed the trail, and then it became a competitive thing,” Skonieczny said. “If you wanted to secure the best work force, you had to match the compensation program as best as you could.”

No more.

“I cannot think of a single company that has started a new defined-benefit plan in the last few years,” said Donald Straszheim, president of Straszheim Global Advisors in Los Angeles. “No new companies are starting them, and I would guess that’s been the case since at least 1990.”

“Today, a large percentage of the defined-benefit plans enjoyed by workers are part of collective-bargaining agreements negotiated by unions,” said Steven Kandarian, former executive director of the Pension Benefit Guaranty Corp. (PBGC), the federal government’s insurer of pension plans.

“Absent a catastrophic event such as bankruptcy, it is highly unlikely that unions will consent to these plans being terminated. So the decline of the system is likely to be slow,” he said.

Ominous signs

But there are ominous signs for traditional pensions and the PBGC, particularly among the ranks of union-heavy employers and old-line industries with pension plans. Two of the industries stressing the agency: steel and airlines.

The airlines’ financial crisis touches the carriers’ pensions, employees and the federal government. As some airlines abandon their pensions in bankruptcy, leaving the PBGC to pick up the tab, others feel pressured to do the same.

David Hess of Southlake, Texas, finds himself in the center of that storm. He has been a pilot for Continental Airlines for 17 years. His wife is also an airline pilot.

Worrying about the future of their pensions is difficult, especially “when you’ve been around for a long time and you’ve counted on that for your future years,” said Hess, 45.

“We realized that we had to do everything we can on our own — maxing out our 401(k) — because there are certainly no guarantees in life.”

To ease the pressure on the PBGC from employers’ abandoning their pensions, the Labor Department proposed in January a 60 percent increase in the insurance premiums paid by pension providers.

Each pension-plan participant would cost companies $30 in premiums, up from $19. Employers that let their plans become underfunded would have to pay even more.

Many experts say that far from shoring up traditional pensions, that move will encourage more companies to pull their plans.

Last year, the PBGC racked up a $23.3 billion deficit, double that of 2003.

That frightens Edna Hart of Dallas. Hart, 84, gets a $300 check each month from the PBGC, which took over the pension of defunct Braniff Airways, her late husband’s employer.

“I’m scared spitless,” she said. “The PBGC is squeaking. They’re running out of money.”

Nothing for inflation

One downside to pensions is they are rarely adjusted to keep up with inflation. But their best feature is the lifetime security.

Retirees who want to achieve the same level of safety would need to use the money in their 401(k) accounts to buy a lifetime annuity from an insurance company. That would yield a fixed, pensionlike payment.

Absent that, and with reduced Social Security benefits likely in the future, many retirees could face an unpleasant situation if they outlive their savings.

“That’s a pretty critical point to this,” said Ari Jacobs, a pension consultant with Hewitt Associates, a consulting firm. “We’re kidding ourselves if we think there isn’t one.”

(Dallas Morning News correspondent Danielle DiMartino contributed to this report.)