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How Bedrock Promises of Security Have Fractured Across America

Companies are discarding traditional pensions -- or making government foot the bill. Delphi workers struggle with the changing landscape.

December 30, 2005|Peter G. Gosselin | Times Staff Writer

Warren, Ohio — For more than two decades, Lowell Seibert made a living driving piles and erecting machinery across the industrial Midwest.

But with mortgage payments, college tuitions and the prospect of retirement looming, Seibert traded in his outdoor job 14 years ago and went to work for the Packard Electric division of auto parts giant Delphi Corp. He was offered $19 an hour (now $30), good benefits and, perhaps most important, the promise of a solid pension and old-age health insurance.

"Heavy construction is a rush," he said of his old position, "but Packard was a sure thing."

Or so it seemed until Oct. 8.

That's when Delphi Chief Executive Robert S. "Steve" Miller, citing global competition and crippling "legacy costs," ushered the $28.6 billion-a-year company into one of the largest industrial bankruptcies in U.S. history. In short order, Miller called for slashing workers' compensation by almost two-thirds, threatened to void the company's union contracts, and hinted broadly that he would follow the playbook he had used elsewhere of pushing responsibility for paying the firm's pensions to the federal government and dumping its retiree health benefits altogether.

Although Delphi has since backed off a bit -- it says it's willing to negotiate with its unions and its former parent and largest customer, General Motors Corp. -- the parts firm has left little doubt that its ultimate aim remains steep reductions in wages, benefits and retiree costs.

Delphi is at the cutting edge of a crisis that's engulfing the U.S. auto industry, much as it did steel and airlines. Its actions are adding to a gathering trend, a shift of economic risks once largely borne by business and government to the backs of working families.

Before the trouble is over, some believe, a corporate icon such as Ford Motor Co. or GM could be swept from the American landscape. So too could much of what remains of the already frayed relationship between millions of working people and their employers.

"When the history of this period is written, Delphi will be viewed as the tipping point where the auto industry either got its act together or failed," said David E. Cole, the son of a former GM president and head of the Center for Automotive Research, based in Ann Arbor, Mich. "The spillover to the rest of the economy is going to be tremendous."

For Seibert, 56, the spillover was immediate. That's because in addition to his pension, he had been socking away money in a company-administered savings account similar to a 401(k). Unfortunately, he had directed almost all of its $84,000 balance into Delphi stock. When the company declared bankruptcy, its shares plunged from a 12-month high of $9 to 33 cents, all but wiping out his account.

The result: "I'm not going to be retiring anytime soon."

Guaranteed benefits

Pensions such as those still offered by Delphi are designed to provide their recipients with a guaranteed income in old age almost no matter what.

Because employers promise to make fixed payments to retirees, they are known as "defined benefit" plans. Because the payments for current workers are so far in the future, grow with employees' tenure and must continue until retirees die, employers are expected to save and invest funds to ensure they can meet their obligations. But whether or not they do, the responsibility for paying, and the risk of investing, are entirely the employer's, not the employee's.

Should an employer fail to make good on its promise, the government steps in. After a series of spectacular corporate failures in the 1960s and early '70s, the White House and Congress created the Pension Benefit Guaranty Corp. to collect premiums from companies and act as a pension insurer.

The combination of a company-provided, government-guaranteed pension and Washington's two big defined benefit programs, Social Security and Medicare, makes for a powerful bulwark against destitution in old age.

By contrast, 401(k)s involve no similar promise of income, as Seibert painfully discovered. Instead, what these accounts offer is a tax break in return for saving out of pay. Employers may contribute, which is why 401(k)s are called "defined contribution" plans. But that's the limit of their obligation. The risks and responsibilities are all on the employee.

Risk or not, however, 401(k)s and similar accounts are sweeping the field. Since 1980, the fraction of the full-time private sector workforce covered by pensions has fallen from 35% to under 20%, according to the Employee Benefit Research Institute, which is sponsored by big business.

One in every six to 10 companies that still offer pensions have frozen their plans by limiting or eliminating employees' right to accrue additional benefits or no longer covering new hires, according to studies by the Pension Benefit Guaranty Corp. and Chicago-based Aon Consulting. Among those that will freeze at the beginning of 2006 is Tribune Corp., which owns the Los Angeles Times.

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