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Is retirement a problem?

By Jennie L. Phipps · Bankrate.com
Monday, May 30, 2011
Posted: 3 pm ET

Traditional defined benefit pensions, which for most of the last century were a fixture of American life, are about to become a relic of the past.

The Standard & Poor's 500 reported Thursday that among its companies, pensions and other post-employment benefits remain underfunded by $210 billion.

"Even with a 15 percent  equity return and a market recovery of over 45 percent over the past two years, S&P 500 companies still could not put a dent into the pension underfunding situation," said Howard Silverblatt, S&P senior index analyst and author of the report.

The report predicts that these remaining traditional pension and retiree health care plans are "legacy programs that will will mostly work their way out of the last bastions of the U.S. labor market, and out of existence" with companies managing these remaining payouts with current income and assets.

The five companies that have the most unfunded pension obligations are:

  • AT&T, $23.9 billion.
  • Verizon, $22.7 billion.
  • General Electric, $10.9 billion.
  • Boeing, $8.4 billion.
  • ExxonMobil, $6.8 billion.

Together these companies represent 34.8 percent of the underfunding. Ford is No. 6 with $6.4 billion underfunded.

S&P says that while the economic meltdown in 2008 made underfunding worse, the underlying cause is longevity. When pensions began to be an expected worker benefit, the average worker life span was 65 and many of them were paid to widows. Today, workers can expect to live in retirement to nearly age 85. At the same time, the cost of the sophisticated health care that has been largely responsible for lengthening lives grows increasingly expensive with no real plan in place to pay the costs, S&P says.

The study concludes that coming to grips with this long-term retirement planning problem is an issue that everyone must face -- not just Fortune 500 companies. "Eventually, the government, in conjunction with the private sector, will be forced to address the situation and take the necessary painful steps. ... Neither have shown a tolerance for the pain associated with the type of forward action needed to address the problem. The longer the situation goes unaddressed or short-term band-aids applied, the stronger the measures will have to be to solve the situation. In the end, individuals -- either as taxpayers or consumers -- will need to pay the bill, as well as, live with the reduction in benefits and lifestyle."

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