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United Ruling Prompts Pension Concerns

RENEE MONTAGNE, host:

On Fridays, our business report focuses on your money. The news that United Airlines defaulted on workers' pension benefits has caused lots of people to worry about the fate of their own companies' retirement plan. To talk about what you need to know about your pension plan, we've asked Dallas Salisbury, president of the Employee Benefit Research Institute, to join us.

Good morning.

Mr. DALLAS SALISBURY (Employee Benefit Research Institute): Good morning.

MONTAGNE: Let's start with United Airlines, and some employees--not all, but some--will take a big hit on their pension benefits. They're not going to lose everything.

Mr. SALISBURY: No. The Pension Benefit Guaranty Corporation--and it will guarantee pensions up to just over $45,000 per year. So only the highest income individuals, pilots and some very long service ground crews, will end up potentially losing some of their pension.

MONTAGNE: So who else does the Pension Benefit Guaranty Corporation protect? What other groups, companies...

Mr. SALISBURY: There's a grand total of about 44 million Americans, retired and working, who are covered by the Pension Benefit Guaranty Corporation. The most common industries in which there are pension plans is manufacturing industries, and so it's been the steel industry. It's the auto industry. It was the old millinery industries--those that basically we've seen jobs being progressively shipped overseas.

MONTAGNE: And what can one do if one has a traditional pension plan that's in financial trouble to protect it?

Mr. SALISBURY: Well, there's nothing you can really do to protect it. You can look for another job if you think your company is one that has real financial difficulty.

MONTAGNE: Let's say you do look for that other job. I mean, is your retirement from your previous job safe at the moment you leave?

Mr. SALISBURY: If you have stayed with that company at least five years, then in technical parlance, you are guaranteed that pension. And the PBGC will then protect it, and what you had earned until the date that you left that firm will be under the guarantee system.

MONTAGNE: Now a lot of people, of course, have 401(k) plans. These are different from traditional pension plans, and surprisingly, a lot of people didn't know that before recently, but they don't pay out every month the way traditional plans do.

Mr. SALISBURY: Well, you can take what is called an annuity out of a 401(k) plan, but the real difference is that the money that goes in is yours from the day it goes in, but you take all the risk of the investment markets. You put that money in the stock market and it goes down, that's your problem. In a traditional pension plan, if the market goes down, the employer has to put more money into the plan. So that's one of the key differences. The risk in a 401(k) plan, as with Enron, WorldCom and other companies, is if your 401(k) plan is invested in the stock of your company and the company gets in trouble, then you have even greater risk than you do in a traditional pension plan, because no one is going to guarantee you against or protect you against those stock market losses.

MONTAGNE: So what can one do, if anything, to protect oneself and one's pension?

Mr. SALISBURY: If it's in your defined benefit pension plan, like United Airlines, make sure you watch the status of your company. And when your company starts getting into trouble, think about making a change. In a 401(k) plan, it's making sure that you diversify your assets. And as with all workers--really a vast majority of workers in America have always had to save for themselves if they wanted supplementation of Social Security--to make sure you're doing that on a regular basis.

MONTAGNE: Dallas Salisbury is president of the Employee Benefit Research Institute. Thanks for coming into our studio and joining us.

Mr. SALISBURY: Great to be with you.

MONTAGNE: This is MORNING EDITION from NPR News. With Steve Inskeep, I'm Renee Montagne. Transcript provided by NPR, Copyright NPR.