The Association of U S West Retirees



Benefits shrinking as recession worsens

The Columbus Dispatch

By Mark Miller

January 06, 2009

We're ringing out 2008 with a frightening deterioration of retirement benefits for American workers.

Benefits consultant Watson Wyatt reports that a growing number of employers are cutting back on their matching contributions to 401(k) accounts as the deepening recession affects cash-strapped companies.

According to a Watson Wyatt survey, 5 percent of companies have already reduced their contributions this year, and another 7 percent expect to make cuts in 2009.


The Watson Wyatt survey in December reflects two other trends affecting long-term retirement security:

  Almost 60 percent of employees have moved their 401(k) or 403(b) investment mix out of equities, compared with 53 percent in October. It's usually a bad move because it constitutes selling at the low end of the market, reducing the opportunity to benefit when the market recovers.

  The number of employees taking loans from 401(k) accounts jumped from 19 percent to 27 percent in the same period. No doubt, it reflects the growing stress on household finances, but 401(k) borrowing can adversely affect long-term retirement account growth.

The trends come as no surprise. But another negative development late last year caught my eye.

The Bush administration's terms for bailing out the Detroit automakers contain concessions by employees in return for the funds. The one that really stood out is the automakers' stock would replace cash in the funding of retiree health care.

The bailout terms call for the United Auto Workers union to accept stock for half of the automakers' required payments into new trust funds already scheduled to take over retiree health-care expenses in 2010.The payments would have been almost $60 billion to bankroll the trust operations.

Because of the concession, retirees will rely on the automakers' near-worthless, fluctuating stock to fund coverage.

Bush's directive comes against a background of shrinking employer-funded retiree health plans, which are hardly limited to unionized workers.

General Motors, for example, announced plans last year to cancel retiree health benefits for its salaried workers. For people older than 65, these benefits supplement Medicare. But for younger retirees -- including those who have been laid off --these benefits are the sole lifeline.

Two studies released last year documented that out-of-pocket health expenses during the retirement years will be more than $200,000 for most people. These statistics include payments to health providers and premium payments.

Skyrocketing health-care costs mean that 44 percent of Americans won't be able to maintain their standard of living in retirement, according to the Center for Retirement Research at Boston College.

Write to Retire Smart in care of Tribune Media Services, 435 N. Michigan Ave., Suite 1500, Chicago, Ill. 60611; or send e-mail.