Retirement? Not in this Lifetime!

February 9, 2005
Retirement Turns Into a Rest Stop as Benefits Dwindle
By EDUARDO PORTER
and MARY WILLIAMS WALSH

LITTLETON, Colo. - For John A. Lemoine, retirement has been hard work. Forced to take an early pension package at AT&T three years ago, Mr. Lemoine, 54, a former building manager who once made more than $70,000 a year handling the operations of several AT&T sites, soon found that retirement was something he just could not afford.

To supplement the greatly reduced pension he received upon his retirement, he first took an $11-an-hour job as a maintenance worker at the Sam's Club up the road from his home here. He retrained as an X-ray technician, and began earning $17.50 an hour as a part-time radiology technician for several clinics. Still unable to make ends meet, he also took a full-time job as a security guard for an hourly wage of $10.50.

"I put in for other jobs, too," Mr. Lemoine said. "You'd be surprised who won't hire you because of your age."

Employers had better get used to seeing older people's résumés.

As numerous companies across the country withdraw retiree medical and dental benefits while others switch to less generous retirement plans, many aging workers who had expected to ease comfortably out of the labor force in their 50's and early 60's are discovering that they do not have the financial resources to support themselves in retirement. As a result, a lot more of them are returning to work.

Since the mid-1990's, older people have become the fastest-growing portion of the work force. The Labor Department projects that workers over 55 will make up 19.1 percent of the labor force by 2012, up from 14.3 percent in 2002.

Until recently, most economists said that older people were being lured back into the labor force largely because of opportunities growing out of the vibrant economy of the 1990's. But these days, they say, many such Americans are being drawn to work out of necessity rather than choice.

As the nation gears up for a fundamental debate over the future of Social Security, these circumstances hint at potential changes in the federal program that supports more than 40 million elderly Americans.

Just as companies are seeking ways to reduce their roles in financing former employees in retirement, many economists say that the Social Security program should also scale back in response to the aging of the population.

Some have pointed out that continuing to raise the official retirement age in step with increases in Americans' average longevity could probably guarantee Social Security's solvency forever.

"Policies promoting longer working life could ameliorate some of the potential demographic stresses," Alan Greenspan, the Federal Reserve chairman, told a conference of economists and policy makers in Jackson Hole, Wyo., last year. "Early initiatives to address the economic effects of baby-boom retirements could smooth the transition to a new balance between workers and retirees."

To some extent, that transition is already under way - although not in the way Mr. Greenspan, 78 himself, proposed. As they stay longer in their jobs or peruse the help-wanted ads for post-retirement employment, Americans are reversing what had been a nearly century-long decline in the participation of older people in the work force.

"Everyone that I talked to is looking at working part time," said Jim Drummond, 59, a 37-year veteran of US Airways in Pittsburgh who retired on Jan. 1 and whose pension plan recently failed and was taken over by the federal government. "The pension is not enough unless you are single and living alone."

Gerald Fronek, 62, an electrician for Lucent Technologies in Lockport, Ill., now plans to retire in April, five years after his original plan was thwarted by the collapse of Lucent's stock in 2000, which took most of his lifetime savings with it.

"I was dealt a bad card," Mr. Fronek said. "I just have to forget about that and move ahead."

Necessity, Not Choice

Made to carry more of the burden of their retirement, many retirees say they feel that a social compact between workers and employers - a set of expectations established over the second half of the 20th century - is being dismantled.

Not only are many discovering that they cannot afford to retire, they are also finding themselves in a labor market in which companies facing tough competition seem intent on controlling costs, partly by ridding themselves of higher-earning older workers.

"I spent 25 years with this company," Mr. Lemoine said. "When we were hired at Ma Bell there was this premise that the more dedication you gave the company, the more they would take care of you."

The steepest turnaround in labor participation has occurred among older men. The percentage of men 55 to 64 years old in the work force fell steadily from 87 percent in 1950 to under 65 percent in 1994. Then it began inching back up, reaching 69 percent last year, according to the Labor Department. Among men 65 and older, the participation rate rose from 15 percent in 1994 to 19 percent last year.

For older women, who entered the labor force at increasing rates through the 1950's and 1960's, the change has been less pronounced. Nevertheless, the rate of participation for women over 55, after declining from around 26 percent in the late 1960's to nearly 21 percent in the mid-1980's, has rebounded over the last two decades, to 31 percent.

A big factor keeping people in the work force later is Social Security itself, which until recently provided relatively generous benefits for people retiring as early as 62 and discouraged work after 65.

But in 1983, to deal with Social Security's first financial crisis, Washington approved a law to raise the normal retirement age from 65 to 67 and increase the benefit paid to people who kept working for additional years. That law only began to bite for those retiring after 2002.

Many economists say that older Americans under 65, and therefore not yet eligible for Medicare, are being forced to accept work they might have disdained earlier so they can afford health insurance and pay for other necessities.

"In the recessions through the 1980's and even in the early 1990's, the biggest drop in participation rates was among people in their 50's and 60's," said Gary Burtless, an economist at the Brookings Institution who studies retirement issues.

But "that has not been true since 2000," he said. "My gut feeling is that what changed is the persistence and willingness of older workers to accept a job that would not have been to their liking 15 or 20 years ago."

Joe Janson, for example, retired three years ago, when he was 55, from an $83,000-a-year engineering job at Lucent to a $35,000 pension. But now he is looking for work again to pay for his family's health insurance, which Lucent cut last year.

And he is not setting his sights high. In January, he and his wife, Mary, made $140 in two days delivering phone books for Qwest. "If I have to," he said, "I will drive a school bus."

Working Older and Longer

Among the most vulnerable workers are those who made their careers at some of the titans of yore - companies like United Airlines, AT&T and Bethlehem Steel.

In the labor-abundant baby boom era, large companies could offer generous benefit packages and valuable incentives for early retirement. Big unions like the Teamsters and the United Automobile Workers promoted early retirement, too, to clear the way for new hiring.

Today, after rounds of downsizings, many companies have sharply cut their work forces to survive intensified competition from home and abroad, only to be left with large pools of retirees collecting benefits far longer than predicted.

Lucent, for instance, has only 20,000 active workers in the United States to generate the business needed to help support nearly 120,000 retirees, whose health care last year cost about $775 million, an amount equal to 70 percent of Lucent's net profit. So the company has been aggressively paring the health insurance it offers its retirees, prompting older employees to rethink their retirement plans.

"We simply cannot afford to absorb U.S. retiree health care costs at this level and remain a sustainable, competitive company," Lucent notified its management retirees last September in explaining a new round of health benefit cuts.

As companies have whittled away at benefit packages, they have pushed their retirees back to work.

The first step was the dismantling of many traditional pensions: the defined-benefit plans that offer a predetermined monthly income after retirement, and usually offer incentives for early retirees.

Companies have been steadily replacing such plans with defined-contribution plans in which workers save a portion of their pay for retirement tax-deferred, and companies contribute a partial match.

As recently as 1979, the Center for Retirement Research at Boston College found more than 80 percent of the workers covered by a company retirement plan had a defined-benefit pension. By 2001, the percentage had dropped to a little over 40 percent.

The dismantling of traditional defined-benefit pensions left many older workers - who had accumulated pension credit under the old system - feeling short-changed. "They did us wrong," said Mr. Lemoine, who says that a realignment of AT&T's pension plan in 1996 slashed his benefits. He joined a retiree organization that is supporting a lawsuit against AT&T over the changes.

According to Stephen Bruce, a lawyer for the plaintiffs, Mr. Lemoine's final pension - valued by the company at $135,000, which he took as a $70,500 lump sum plus $402 a month - was less than half of what he would have been due under the previous defined-benefit system.

Citing the lawsuit, an AT&T spokesman said the company could not comment on the matter.

Health Benefits Hold Sway

Even more critical has been the collapse of company-paid health insurance for retirees, prodding growing numbers of workers to hang on to some job, almost any job, to keep their health coverage until Medicare kicks in at 65.

In 1988, two-thirds of all large employers offered health benefits to retirees; last year only about one-third did. And employers who offer coverage are forcing workers to shoulder more of the cost. In 2004, 79 percent of them increased their retirees' premiums. A survey by Watson Wyatt, a corporate-benefits consulting firm, found that the absence of company-financed retiree health insurance increased the average retirement age by two years for women and 1.5 years for men.

"In this day and age," said Jonathan Gruber, a professor of economics at the Massachusetts Institute of Technology, "retiree health insurance is perhaps the biggest single determinant of retirement."

Mr. Janson, the former Lucent engineer, agrees with that. Even though he has two teenage daughters at home and his wife, Mary, does not work outside the home, he could afford to stay retired, he said, as long as Lucent kept paying for his family's health insurance. But last year Lucent stopped paying for his dependents' coverage. That left him with an extra monthly bill of about $500.

"We were making it before they took medical away," Mr. Janson said. "It's kind of like the company pulling the rug out from under me now."

Mr. Janson is also suffering because he put most of his retirement savings into Lucent stock. Shares he bought at $80 are now trading at less than $4 and his nest egg - worth about $700,000 in 1999, he said - is now less than $150,000.

For Americans heading into retirement, the contrast to the previous generation is stark. The typical household headed by a 47- to 64-year-old is poorer today, in constant dollars, than a similar household was in 1983. The main reason is the disappearance of the traditional pension, according to Edward N. Wolff, a New York University economist who analyzed Federal Reserve wealth data.

Mr. Lemoine is lucky that AT&T still offers health insurance that covers his family, even though the monthly premium of $421.52 is more than his pension check. A head injury in a car accident in August ended his stints as a security guard and part-time X-ray technician.

That shifted the financial burden of a four-teenager household onto his wife, Susan, 41, who draws a modest salary as a paralegal. Mr. Lemoine's 80-year-old mother also pitches in, lending the family money.

The ordeal has profoundly changed Susan Lemoine's outlook on the future.

"I will work," she said, "until the day I die."


Eduardo Porter reported from Littleton, Colo., for this article, and Mary Williams Walsh from New York.



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