National Press Club

Boomer retirees face uncertain future, Pension Benefit director says

April 4, 2012 | By Terry Hill |

Americans are living longer, healthier lives, but many retiring baby boomers haven't saved enough to guarantee a financial secure future, Pension Benefit Guaranty Corp. Director Joshua Gotbaum said Wednesday at a Newsmaker briefing.

About10,000 Baby Boomers turn 65 each day, but many don't have enough money to retire, Gotbaum said.

“When (John F. Kennedy) was president, the average retiree didn’t live to see their 80th birthday,” he said. “Today, the average retiree will live well into their 80s and a quarter will reach their 90s. People are living longer but that means retirement will cost more, too.”

Some suggest people should just work longer, he said, but many are already doing that. The retirement age has increased in recent years, and the stock market crash cut deeply into holdings, forcing people to stay in their jobs.

Pensions that provided enough economic security in the past will not do so in the future, he said.

To solve the problem, individuals need to save more, businesses must provide and contribute to savings plans their employees, and the federal government should provide incentives that encourage private retirement plans, he said.

The agency, whose job is to encourage and preserve retirement plans by U.S. companies, oversees 27,500 private-sector pension plans and is responsible for the retirement benefits of almost 1.5 million Americans. But PBGC, funded not by tax dollars but through insurance premiums paid by employers, has a $26 billion gap between what it owes and its assets.

Half of all people working today do not have an employer-provided pension. Most who do have an employer-provided pension plan have 401Ks, but those aren’t guaranteed. If the market drops, he said, you aren’t going to retire when you want.

Employees aren’t good at figuring out 401K plans, he said. That’s why the agency focuses its attention on preserving traditional, defined-benefit pension plans which provide lifetime income. Today, 75 million Americans are covered by such plans.

Citing American Airlines’ bankruptcy as an example of PBGC's success in providing a pension safety net for workers, Gotbaum said the agency is not only working to preserve the company’s pension plan that covers 130,000 retirees but also save the jobs of 80,000 workers.

Gotbaum said there is a fundamental unfairness in the way pension premium rates are set now, penalizing companies whose plans work to pay for those whose plans fail. Using automobile insurance as an example, he noted that drivers’ rates are based on their records, but all companies with traditional pension plans pay the same rates for premium insurance regardless of their individual situations.

Historically, premiums are set by law and have lagged, he noted. Congress has raised premiums over the years, but the agency has asked lawmakers to set rates on a more business-like, risk basis and let the agency figure out which rates apply to which companies.