MS. LAURA KNOYThanks for joining us. I'm Laura Knoy of New Hampshire Public Radio sitting in for Diane Rehm. She's on vacation. Employee pensions were once considered untouchable, but many companies now say an aging workforce and spiraling costs are forcing them to slash pensions as well as healthcare for millions of retirees.

MS. LAURA KNOYBut a former investigative reporter for The Wall Street Journal says the retirement crisis is no accident. In a new book, she reveals how some companies actually profit from reduced pension plans, often at the expense of retirees. The book is titled "Retirement Heist" and author Ellen Schultz joins me in studio. Ellen, thanks for being here.

MS. ELLEN SCHULTZGlad to be here, Laura.

KNOYWe'll also take your calls at 1-800-433-8850, 1-800-433-8850. Send us your email at drshow@wamu.org or join us on Facebook or Twitter. And Ellen, before we get into all the details of what you say happened, let's just step back, let's get some definitions out of the way, defined benefit plan versus defined contribution plan, that's what we're looking at here.

SCHULTZIt's actually quite simple. A defined benefit plan, that's just a fancy way of saying pension and the pension is calculated based on the number of years you've worked there and your pay. So the longer you work and the higher your pay, the bigger the pension. They tend to grow very quickly in your final years.

SCHULTZNow, in contrast, there's the so-called defined contribution plan, which is the 401K usually. It's just a savings plan. It is just money you set aside that grows tax-deferred. Sometimes your employer puts some in there as well so it's just a savings plan.

KNOYSo in the first, though, the company assumes the risk and in the second, the employee assumes the risk because it's invested in stocks and so forth. Is that right?

SCHULTZWhy, yes, with a pension, the employer has promised you some deferred pay so it's up to them to make sure they invest it correctly.

KNOYYou will get $10,000 no matter what?

SCHULTZYes, yes, you will get this money no matter what, well, hypothetically, and with a savings plan, you have to choose to put into it and you have to manage the money. So you bear all the risk.

KNOYHow many workers are covered, just roughly Ellen. You don't need to give us specifics, but roughly how many workers are covered by each of these? Where are we going in terms of retirement?

SCHULTZWell, about -- here's the thing, about half of the workforce has no pension or savings plan at all.

KNOYNothing?

SCHULTZNothing. The other half, the private sector, there are 44 million people in pension plans. People think they've vanished but actually they're quite widespread. And there's another, maybe 30 million in public plans, public employees so the way things are going now they're about equal but the savings plans are growing.

KNOYAnd that's a big shift isn't it?

SCHULTZIt is, it is. And that's why retirement security is eroding rapidly.

KNOYGo ahead give us a little bit more on that.

SCHULTZWell, what we've seen in recent years, in the past 20 years, in fact, is that the pension plans have become very weak and this was essentially a manufactured crisis because as recently as the late '90s, there was a quarter of a trillion dollars in surplus assets in pension plans and the companies have systematically taken money from the plans and used it for restructuring, to pay for parachutes, they even sell the assets in merger and acquisition deals.

SCHULTZAnd because of all these things, when the stock market went down and interest rates went down, there was no cushion left anymore so the plans had become collectively underfunded by about 20 percent.

KNOYSo we hear a lot about the concerns of Social Security and Medicare. Is that the retirement crisis, too, Ellen, when you look at this idea of retirement crisis writ large? Or are you focusing really on private sector pensions?

SCHULTZI'm focusing primarily on the private sector but it actually is going to affect social security because as the private sector weakens we rely more and more on social security and there's an assault on that system as well.

KNOYAssault on that system meaning...

SCHULTZMeaning various groups want to dismantle it or reduce benefits.

KNOYSo is that the argument that even if I'm not concerned about the private pension defunding, I should still be concerned because the more private pensions are underfunded the more they're going to be, those people are going to be needing to draw from the public system. That's sort of the broad reason why we're concerned about this?

SCHULTZYes. And even if you don't have a pension this whole system affects you because you have perhaps a savings plan and employers can play many tricks with those to your detriment and the industry that has essentially helped employers reduce benefits, all kinds of retiree benefits, it's the same industry that is responsible for some of the underfunding in public plans and also is part of a large coalition that wants to dismantle Social Security.

KNOYSo this transition then from these guaranteed pensions you will get, Ellen, $10,000 or $20,000 a year versus it is in a 401K, it's invested and it's up to you to see that it's successful. What was behind this transition, first of all, from defined benefit plans to defined contribution plans?

SCHULTZWell, back in the '80s, employers had very healthy pension plans because pension law had forced them to contribute to the plans and keep their hands off the money. So we had a large number of very healthy plans with a lot of surplus and companies set about killing off their healthy plans. Sometimes it was pension raiders who would come in and take over a company, kill the pension and carry off the surplus assets, you know, raiders like Perlman and Horowitz.

SCHULTZAnd so what happened then was if they killed the healthy pension plan, they could use a little of the surplus to pay for their contributions to 401Ks. That gave them the opportunity, thanks to a loophole, to take the rest of the money themselves. So there was a huge wave of healthy plans being killed and the 401K was set up just because it enabled employers to have a loophole to capture the surplus.

SCHULTZIn other cases, companies that were in deep financial trouble, of course, if they went into bankruptcy, they would dump their pension plan on to the Pension Benefit Guaranty Corp. which is the federal insurer that steps in and pays the benefits. So in a smaller number of cases, you had those kinds of terminations and then, of course, the company would have just a savings plan.

KNOYWasn't the transition from pensions to 401Ks partly due to a rapidly-changing workforce? Employees come, they stay for a couple of years and they leave. They're not really interested in a defined benefit plan with a long-term horizon.

SCHULTZAbsolutely not, that's the employer argument that, oh, well, this change has come about because we want to accommodate a more mobile workforce. In fact, companies had mobile workforces only very recently and that's only for younger people. Young people, of course, leave frequently. But the workforce that they were interested in taking the benefits from was the older workforce. They're not mobile at all. They tend to want to stay in those jobs until they reach the maximum pension payout range.

SCHULTZSo the whole change away from pensions has been essentially to target this group and to get them off the payroll.

KNOYSo you're saying this started in the '90s when, you know, the economy was booming. You're saying this is not a victim of, you know, falling stock prices, the soaring cost of employee healthcare and the more recent recession?

SCHULTZAbsolutely. Back in the '90s the irony was companies began to cut pensions, usually secretly, but they were cutting them greatly usually by 20 to 50 percent. Even as their pension plans had massive surpluses, there were surpluses of say 24 billion at Verizon, 20 billion at some of the other larger companies. So the companies had plenty of assets, but it was just to their benefit to continue to cut the benefits for others.

KNOYAnd I remember a wave of mergers and acquisitions in the '80s. Is this when the roots of this got started, Ellen?

SCHULTZNo. There were -- the effective mergers and acquisitions in the '90s had a great impact on this because companies learned that you could monetarize pension assets. Let's say you want to send $100 million of extra money over to the company that is buying a unit, they'll give you maybe 70 cents on the dollar for those assets so you, the seller, you get to, you know, take $100 million and get $70 million for it and the buyer gets something worth $10 million and pays only $70 million.

KNOYWell, and this book makes some very harsh conclusions about these companies. I mean, you're saying basically they raided and robbed these pensions. I wonder, Ellen, is it not the case that no company had a legitimate need to cut benefits? I mean, are they all bad guys?

SCHULTZYou know, companies generally if they had well-funded plans, there was no need to cut the benefits. It's just that there were so many ways they could use the money and also this change in accounting rules that came in in the early '90s gave employers a huge motive to cut benefits because what people don't understand is even if a plan is well funded or the retiree healthcare that you've promised, if you cut those benefits and take them away from future people, that translates immediately into profit for the company.

SCHULTZSo if you cut $100 million dollars of benefits that was going to be paid in the future, immediately you get that $100 million in profit. It is paper profit, but it affects your earnings the same way as selling trucks or hardware.

KNOYI'm just wondering what's behind this shift then from this agreement, yes, we will pay you, our retirees this, to we're going to cut this and so forth. I mean, is it a psychological shift? Is it a change in the federal government oversight? What's causing this sudden change that you see in the 1990s?

SCHULTZI think a large amount of this was -- could be attributed to consulting firms, the large accounting and actuarial firms that developed very aggressive techniques to help employers cut benefits. It was at that time when employers realized that by cutting benefits, even if it wasn't costing them anything to provide, they could pump up their profits. So this is what really put the squeeze on retirement plans and you could see companies cannibalizing their plans bit by bit.

SCHULTZThey might make a small pension cut here and then they'll make another pension cut there. They'll cut some of the retiree health benefit or some of the death benefit for retirees, just wave after wave of little cuts because each time you cut something that's guaranteed income to the company that might help you get your 2 cents a share to meet your earnings target.

KNOYSo death by a thousand cuts?

SCHULTZExactly.

KNOYWell, and you say that it was easy for them to do this because, let's face it, most of us don't really understand all the mumbo jumbo in our pension plans.

SCHULTZThat's the thing this whole thread of deception is fairly widespread through this whole process. People's pensions were being cut in the '90s and they didn't know. And it was quite clear, especially from court cases that have come up since then, that the companies deliberately deceived employees. They set about making it impossible for people to know what was happening and this has come up in a case, say involving Signa, where federal court found that Signa had actually deceived its employees so they wouldn't have any kind of employee backlash for the benefit cuts.

SCHULTZAnd there's also been a very strong pattern of deceiving retirees of the public and Congress about the impact or the burden of retiree medical benefits. There's a constant claim that they're just crushing the companies. In fact, the companies have set ceilings on what they'll pay. They face no exposure to spiraling healthcare costs because they've already established a maximum that they'll pay and any increase gets passed on to the retirees.

KNOYWell, coming up, more on Ellen Schultz's book "Retirement Heist" and we'll start taking your calls. You can join us at 1-800-433-8850, 1-800-433-8850 or send email to drshow@wamu.org and we'll be right back.

KNOYWelcome back. I'm Laura Knoy sitting in for Diane Rehm. Our guest this hour is Ellen Schultz, a former investigative reporter for the Wall Street Journal. In 2003 she was part of a team of Wall Street Journal reporters awarded the Pulitzer Prize for articles on corporate scandals. Her new book is called "Retirement Heist: How companies Plunder and Profit from the Nest Eggs of American Workers."

KNOYYou can join us at 1-800-433-8850. Send us your email drshow@wamu.org or join us on Facebook or Twitter. And, Ellen, before we got to our listeners, I did want to ask you, in the book, right off the bat you named GE as one of the companies that has participated in what you call this retirement heist. GE has contacted us here on the Diane Rehm show about this. They say they -- that your book does misrepresent the facts regarding GE and its pension plan. They say the company did not sell the pension surplus, never has. That there are not dozens of deals in which GE transferred pensions assets, that Martin Marietta was a single deal.

KNOYAnd basically, Ellen, categorically rejecting -- I'm reading here from a corporate communications person -- categorically rejecting the implication that GE has cut pension benefits for existing employees and retirees. What do you think about that? They're upset. They feel like you're misrepresenting what their company did.

SCHULTZIn the book, I never say that they cut benefits for existing retirees. That's not the case. They have had some cost of living adjustments, very small ones, over the years. What I point out is that they closed the pension plan to new employees.

KNOYAnd they do say that in this letter that I'm reading from. Yes.

SCHULTZYes, yes. And that means that anybody who's joining the company now will not be participating in a pension. And the -- there have been many disputes over the years between GE and the government over who actually owns the surplus that the plan had generated, 'cause there have -- had billions of dollars in surplus.

SCHULTZAnd so there have been a number of cases in federal court over that because the U.S. government says that it is entitled to the surplus because taxpayers finance the benefits in these defense contracts. And GE has maintained that no, the surplus actually belongs to the company.

KNOYWhen a company is sold to another company -- we talked about this a little bit before, but in the '80s and '90s, these mergers and acquisitions -- what happens then to the pension? I mean, this letter from GE Corporate Communications says when we sold our airspace business to Martin Marietta in 1993, we also transferred employees with the sale. Pension, assets and liabilities, including a proportionate amount of surplus were transferred along with the employees. No pension assets were ever withdrawn by GE. This was the appropriate and responsible thing to do for the benefit of those employees.

KNOYSo is it always bad when these mergers and acquisitions happen? Do people always lose out? GE says people didn't lose out in this particular transfer.

SCHULTZIn this transfer, there was more pension assets sent over than was needed. Now, I know GE maintains that this was just part of doing business, but, in fact, the U.S. government took a different point of view on that. They felt that the surplus really didn't belong to GE and had no right to send it over there.

KNOYWell, and I want to invite our listeners to join us again at 1-800-433-8850. Also email us at drshow@wamu.org. And here's an email from Jeff. He says, "I understand this is a rather basic question, but was or is this illegal?" Also he says, and I probably know the answer, but "where did all the money go?" It's a great question, Jeff. None of this was illegal, as you say in the book.

SCHULTZRight. These were all perfectly legal maneuvers, or most of them. There are some that are in a gray area but for the most part using the assets to pay for restructuring was considered legitimate. Congress actually green-lighted companies' use of the assets to pay for retiree health benefits back in 1990. So billions of dollars have gone out the door for that.

SCHULTZAnd the whole part about using the assets to pay for executive parachutes is a little more off the radar screen and it's questionable about how legal it is. But it appears that the companies have exploited very successfully some loopholes in various pension rules to allow them to do that legally.

KNOYWe've got a lot of emails, Ellen, from listeners who want to ask why the government is not protecting its citizens from corporate abuse. Here's one from JC in Baltimore who says, "I don't think most Americans realize that the 401K and other defined contribution plans were never intended or designed to replace pensions, but rather to supplement them." JC says, "I feel like we have all been let down by our elected leaders and corporate leaders in understanding and protecting our retirement savings."

KNOYWhat about the federal government? Does it have a role here in making sure that these pensions are not, as you say, raided?

SCHULTZWell, back in 1974, Congress enacted federal pension law and the whole goal of that was to protect these assets. Because there had been some terrible debacles in the '60s and early '70s where companies hadn't funded the plans or did other things that resulted in people losing much of their pension benefits, including companies like Studebaker.

SCHULTZSo they enacted rules, but the problem is that over time companies have found ways to sort of get around these rules. So there are -- there had been a growing number of ways they could tap the assets and use them for the benefit of the company. And there are plenty of rules even with 401Ks that help companies at the expense of the employees.

KNOYWhat sorts of stories did you hear from people as you were reporting for this book?

SCHULTZI talked to a number of retirees who were suffering from various hardships, especially the very older ones who had worked at companies like Bell Labs, Western Electric. They had been promised a certain set of benefits. And it's not just a promise. It's compensation. They accepted lower compensation in exchange for deferred compensation later. So that was the whole deal with companies in the post World War II era. It's have some lower benefit now and you'll have more later.

SCHULTZSo they were counting on having their health benefits paid for. They were counting on their pensions. And they have -- the older ones received those pensions but they also were counting on things like death benefits, which were usually just the equivalent of your final year pay paid out to you in retirement. And much of that has gone away.

KNOYWell, one of the more interesting stories is about the National Football League. Even NFL players who we think would be golden and, you know, be all set for life were caught up in this as well.

SCHULTZYes. I talked to Vic Washington. He'd been a player with the 49ers and other teams. And he was among many football players who had long struggles with the NFL to recover their football-related disability benefits. What people don't understand is that pension law covers all benefits. So employers are able to use the fairly loose rules there to actually fight retirees who try and recover benefits.

SCHULTZSo Vic Washington spent more than 20 years fighting the NFL to recover football disability. And even when the NFL's own medical team concluded that he was disabled because of football, the NFL maintained that no, this was not football related. And so they denied the benefits.

KNOYAnd what happened to him?

SCHULTZWell, he had a very small amount of benefit and ultimately he died several years ago, never recovering the benefits he was entitled to.

KNOYI want to ask you a broad question, Ellen, before we go to the phones. And here it is. Companies say, look, you know, in the 1950s, '60s when America was the big dog on the scene we could afford to do this. Now it's a global economy and we just can't afford to have so called gold-plated pension benefits. That's from a previous era. We've got to operate so lean and mean because we're facing competition on a global stage from China, from India, from Germany. What do you think about that? I mean, are you sort of stuck in an earlier era and this is just not the way things are now? So get used to it.

SCHULTZNo, that's -- what companies are doing there is misrepresenting what's going on. The -- what they are taking away isn't something that other companies have anything to do with -- or other countries. It's something that has already been promised. It is a debt. It is something that, you know, companies have profited from and they are trying to take that back.

SCHULTZGoing forward, sure, many newer companies, the tech companies, they start out of the gate, like Microsoft, they don't have pensions. And no one is complaining about that. What's happening though is the companies that have promised these things are just trying to hang on to the assets. And they are blaming global competition. They're blaming an aging workforce. They blame the stock market. All of these elements that they're blaming and it's just a cover for what they're trying to do to profit themselves.

KNOYLet's take some calls, Ellen. Again, the number 1-800-433-8850. Our guest is Ellen Schultz. Her book is called "Retirement Heist: How Companies Plunder and Profit from the Nest Egg of American Workers." And let's go first to Toledo, Ohio and Cooper's on the air. Hi, Cooper. You're on "The Diane Rehm Show." Thanks for being here.

COOPERGood morning.

KNOYMorning.

COOPERMy general questions, I guess, would be what were the labor unions' roles in this happening? You know, were they strong advocates for their members or were they more complicit with the company? And then, secondly, I'm in a building trade which our pension's being radically affected currently. And ten years ago, we were told we couldn't put any more money into our pension. There was a federal rule limiting how much we could put in.

COOPERSo they started paying fairly lavish payouts to retirees. And within the last couple of years, we're now told there's a federal rule saying they need to extend the pool. And we are (unintelligible) of money taken out of our checks. We will never get any pension out of it. It's just, fill the hole that was created by a federal rule. I'll lose half my pension the next 15 years.

KNOYWow, Cooper, I'm sorry about that. So thanks for calling in, and two great points. First of all, unions and their role in this.

SCHULTZUnions actually have been very helpful to employees and retirees. There was a situation back in the '90s where the unions themselves were being fooled by the companies on many fronts. The companies were claiming that the retiree healthcare burdens were huge and spiraling. And the unions didn't realize that the companies were manipulating those numbers.

SCHULTZThe same thing with the pensions. Companies when they were cutting pensions using these new formulas very often would tell the unions, oh there's this great new benefit structure. And we have it for management so don't you want it too? And in some cases the unions fell for that. Others were a little more skeptical, like Communication Workers of America pushed back a bit. But actually the retirees who have been better protected from some of these cuts are in the unions. It's -- because they have contracts it's a little tougher for companies to just come in and kill that.

SCHULTZAnd, Cooper, what you're saying about what's going on in your plan. There's something that they're not telling you because what you're saying doesn't make sense. It's...

KNOYThe federal rules will mean he has to get much less money.

SCHULTZYes. There are no federal rules that are saying you can't get the benefit you've earned and you can't get the money you've put aside. That absolutely cannot be the case. I do know that companies very often blame the federal rules, vaguely stated, as the reason they have to do something. But that is never the case.

SCHULTZSo I am intrigued by that. I'd like to hear more about it. So I'd be interested in hearing from you if you want to follow up on that.

KNOYWell, and I have read that that there's so many rules around these defined benefit pension plans, making it too hard and too expensive for companies to keep up. So they say, you know, forget it.

SCHULTZThat has been a perennial complaint that companies blame burdensome regulation. In fact, they have these regulations down pretty well so they know how to take advantage of them. There's, for example, companies that are well funded, have been pushing for years, and they are still pushing, for the ability to put more assets in the pension plan. Because the pension plan, face it, is a wonderful tax shelter for a company. If they put $100 million in they can immediately deduct $100 million. And thanks to accounting rules they can put on their books guaranteed income of 8 percent on $100 million right off the bat.

SCHULTZSo they love putting money into the pension plans. And it's not locked up, as we've seen. There are plenty of things they can do with it. Meanwhile companies that are -- have underfunded plans are lobbying for rules that will let them put no money in, you know, claiming that we can't afford it. So whatever benefits the company that's what they're pushing for.

KNOYWell, Cooper, thanks for the call. And you're listening to "The Diane Rehm Show." I'm Laura Knoy. If you'd like to join us call 1-800-433--8850 or send an email to drshow@wamu.org. Ellen, let's go to another caller. This is Semein (sp?) in Burke, Va. Go ahead, Semein, and thanks for being on the air with us.

SEMEINHello.

KNOYHello, Semein. You're on the air.

SEMEINYes. I just wanted to thank the lady, who's name I cannot -- for the book. And the fact is that it's not just the competition because from the beginning of the 1980s, there was this big stink in the values in the U.S. whereby becoming a millionaire at the age of 30 and making tremendous profit became the value.

SEMEINSo the companies, they were not not making it because we see since then their profits have gone up and also their pay. How could they say that they cannot pay the average worker, which is making little money, any increase or pension where the executives' pay have increased tremendously right now. The executive pay is hundreds of hundreds and some times the average worker.

KNOYSemein, yeah, thanks for calling because that is something you raise a lot in the book, Ellen. Semein, thank you.

SCHULTZYes. I'm glad Semein brought this up because what we've seen has been a parallel development. At a time when the companies were able to profit by cutting retiree benefits, this was coinciding with the whole move in corporate America to award pay to executives based on performance. So anything that pushed up the stock price, i.e. cutting retiree benefits, actually benefitted the top executives. So we have seen this parallel growth -- you know, this huge metastasizing of executive pay. And the executive pensions, which are based on that pay.

SCHULTZAnd because executives tend to defer their pay, that becomes a huge liability. It's like the companies have put executive pay on a big credit card. And meanwhile the executive pensions have been ballooning. And together you have these executive legacy liabilities that have, at some companies, grown to be as great as the total pensions you owe everybody else. And these executive pensions and deferred pay are creating such a burden that very often when companies complain about their so called costly pensions, it's the executive pensions and pay that is causing the impact on earnings. Not the regular pensions at all.

KNOYNow, when you started doing this type of reporting at the Wall Street Journal what was the reaction from the business community?

SCHULTZAny of the information that ran in the Wall Street Journal was vetted by the companies. It was run past them. They had opportunity to correct it and turn it...

KNOYIn terms of the raw numbers.

SCHULTZYeah, raw numbers, anything we've said about what they've done with their plans. So this is something that the companies are well aware of and they could not challenge it. It comes straight from the financial filings so it's -- you really can't argue with the numbers in the filings.

SCHULTZSo companies are, I think, relying on the fact that people don't understand the accounting and what's happening to maintain this illusion they have. For example, people -- all the analysts out there, when they talk about the underfunding and U.S. pensions, they're basing that on SEC reports. In fact, those figures include executive pensions. And none of the analysts are backing that out. They talk about plans being underfunded by X billion but that can include executive pensions. So there's this false illusion -- there's this illusion out there that all the problems are caused by the regular plans.

KNOYSo it isn't just that they have cut employee pensions that bothers you, Ellen. It's that they have cut those pensions to pad their own pensions. That's a pretty big charge.

SCHULTZI'm not saying that they deliberately set about doing that, because how could I possibly know what was in their minds? All I can point to is a correlation that whether knowingly or not when the CFO said we have to do this, it reduced benefits for everyone, it pushed up profits and correspondingly it increased the benefits and the pay for the top executives.

KNOYSo draw your own conclusions there, you're saying.

SCHULTZYou can draw your own conclusion. And I would give people a pretty stark example of how this can play out because we're talking about any kind of retiree benefit. And you may recall the terrible disaster last year at Massey Energy, the coal mining company. The big branch mining disaster in which dozens of miners died. At the end of the year the CEO, Don Blankenship, was -- left his job. And his total payout for the year, which includes everything he got like departure pay, was $55 million. In comparison the amount that went out to all the thousands of retirees for their pensions, for their workers comp, for everything else was 37 million.

KNOYAll right. And we'll be back after a short break.

KNOYWelcome back. I'm Laura Knoy sitting in for Diane Rehm. Our guest this hour is Ellen Schultz. She's a former investigative reporter for The Wall Street Journal. Her new book is called, "Retirement Heist: How Companies Plunder and Profit From The Nest Eggs of American Workers." You can join us at 1-800-433-8850 or send an email to drshow@wamu.org.

KNOYAnd, Ellen, lots of emails have been coming in. Here's one from Brian in Philadelphia. "I wanted to know if your guest was sympathetic to the argument that new U.S. companies do not have to provide these benefits to workers and, as a result, may be more competitive than older companies. Use Southwest Airlines as an example versus the legacy carriers and their retirement burden of their pilots, costs which Southwest does not have to incur, thereby, making them more competitive."

KNOYI flew down Southwest from New Hampshire to come here to Washington to host and, boy, it was a lot cheaper. So is there a benefit to consumers from this lack of pensions in corporate America today?

SCHULTZWell, a new company that's starting out the gate isn't -- is probably not going to offer pensions to the regular workers. They will to the top executives, of course, so you keep your eye on that liability. But if a company was planning to be around for a while and was planning to offer pensions, it's cheaper for them to provide a pension than it is a 401K because you have the time value of money.

SCHULTZMoney put aside now that will grow later, tax deferred, it actually saves the company money. But to your point about how, you know, Southwest compares to the other carriers with the pilots, everyone's piling onto those pilots, blaming them for the terrible problems these companies are having. In fact, you really cannot blame the pilots or the flight attendants or the mechanics.

SCHULTZThe companies had the assets to pay this. They just bumbled it through the years. They did not fund the plans properly and, even, as we saw after September 11, when the airlines like Delta, U.S. Air and United were getting into trouble and headed towards bankruptcy, some of these companies were still pulling out pension assets to pay for restructuring.

SCHULTZAnd as the GAO found last year, ten large companies with huge bankruptcies in recent years these companies spent a total of $350 million to pay their executives -- $350 million as they were putting nothing into the pension plans. So don't blame the pilots for this and don't blame the other employees. It's the company's own management that has done this.

KNOYWell, thanks for that email. And here's another one, Sam from Laurel who says, "What happens to pensions when a company becomes bankrupt?"

SCHULTZWhen a company goes bankrupt, if the plan is well funded, which has been the case in some like, Montgomery Ward back in the 90's, it went bankrupt and it had this very large surplus. Well, the company killed the pension plan, kept the surplus and the plan was then sent to the PBGC, which paid out the benefits. People got their benefits because there was plenty of money.

SCHULTZIf a plan is underfunded and it gets dumped on the PBGC, as we've seen with the U.S. Air pilots, very often their benefits can be cut steeply. This won't affect people who are making very little, whose pensions are very low, but if you're in management, for example, and you're hitting near that, the maximum that the PBGC will pay out, which is about, I forget, $44,000 a year.

SCHULTZIf that's the case, then, if you're close to retirement or you've been retired less than three years or so, you can actually lose a significant amount of pension.

KNOYAgain, PBGC, Pension Benefit Guarantee Corporation, this is a federal agency that backs up pensions to some extent...

SCHULTZYeah.

KNOY...but not fully.

SCHULTZIt's an insurance plan that companies pay into. They pay a premium based on the number of retirees.

KNOYLet's take another call, Ellen, and go to Lee in Cleveland, Ohio. Lee, thanks for waiting. You're on "The Diane Rehm Show," go ahead.

LEEYes, thank you for taking my call. The author referred to the blame game and I wanted to put a little different spin on that from the other side of the issue. I was a pension actuary for 30 years with around when the Pension Reform Act was passed in 1974. And I have clear recollection that the Internal Revenue Service spent a fair amount of their time trying to browbeat plan sponsors into putting less contributions.

LEEThey had elaborate maximum contribution limit requirements within the Pension Reform Act and if a plan sponsor wanted to put more than that in they would nail them and say you couldn't do that. Secondly, the Pension Reform Act was a fairly extensive and significant act, but since that time, we've had dozens of amendments and tens of thousands of pages of regulations.

LEEAnd I have worked with plan sponsors who have decided to terminate their plans because of the additional legal and actuarial and accounting fees, the PBGC premiums, the printing charges, the staff time. And they say they're paying out more in administrative costs than they are in pensions because of the government impositions of all these regulations. So, I think, there are two sides of the coin and not just the one side that the author has been referring to.

KNOYAll right, Lee, thanks for calling. Good to hear from you since you worked in this business. So thanks for calling in. What do think? We touched on this earlier, Ellen, but go ahead.

SCHULTZYes, Lee, I don't dispute some of what you say. When you're pointing out that the IRS told companies they could not put any more money into their plans because they were over funded, you're quite right. There is a -- I believe it's 150 percent limit. And companies have blamed this for their underfunding when, in fact, you know, I have seen the companies pull out so much money that it's not the ceiling that hurt them because they weren't hurting when they had, you know, $20 billion of surplus.

SCHULTZThere's also -- I don't disagree that a lot of plan sponsors, especially, the smaller ones and mid-size companies, do find it very complex to deal with the regulations and the accounting. However, if you look at the 5500's that companies file with the IRS...

KNOYFifty-five hundred's are what, Ellen?

SCHULTZ...you can see -- the 5500's just like a tax return for the pension plan. And these are easily available online. They show the exact amount that's paid out to everybody who manages that plan, to the actuaries, the record keepers, the trustees, investment managers, every dime that is paid out to them is listed there as are the payouts from the pension plans.

SCHULTZSo you could take a look yourself and see if, for some reason, which seems a little hard for me to believe, that pension payouts are dwarfed by the fees that are going out to the people who run the plan.

KNOYSo who's really at fault here? I mean, I think, I know what you're going to say, but we are getting a feeling that the federal government has played a role here either because they haven't been paying enough attention or as, Lee, our caller, says they've been paying too much attention and over regulating. You know, who's really to blame here? Should Americans know better what's going on and, you know, stand up and fight for their pensions. What's really the blame game here?

SCHULTZWell, I can't blame the typical plan participant. How could they possibly know how any of this works? They're told they're going to get a benefit and they just assume that a company's going to do the right thing. I can't blame the government as this amorphous bad, you know, entity that has done this because, as you see in any number of areas, lobbyists, for various interests, like the retirement industry, have lobbied Congress very aggressively to be able to have the various loopholes that they're enjoying.

SCHULTZSo, you know, if you blame the government, well, let's blame Congress if they have succumbed to the temptations, you know, to the tales that the lobbyists tell them. So it's -- you can't just say, oh, it's the government's fault.

KNOYAll right, let's take another call. And thanks for that one, Lee, and Karen is up next from Lowell, Mich., hi, Karen, you're on the air. Go ahead.

KARENHi, thank you for taking my call. I just wanted to say that when I was about 15 years old the company my dad worked for was bought out by a German company who, basically, took the contracts that they had and stole the pension money and then resold the company. And so my father, who's now 72; he had been guaranteed a $4,000 a month pension for, like, his whole early life. And now he receives only a $400 a month pension from that plan.

KARENAnd, you know, at the time he was very upset, but I was 15 and didn't really think much about it. But, now, I see that his main income is Social Security and he still works a part-time job teaching 20 hours or 30 hours a week.

KNOYWow, so how old is he, Karen?

KARENHe's 72.

KNOYYeah, and still working almost full time, really, 30 hours a week. You know, thanks for calling in and, I know, you heard stories like this when you were researching for the book. I think there was one gentleman who was 80 something and working at Walmart just to meet the bills because his pension didn't turn out to be as generous as he had hoped.

SCHULTZYes, the reason his pension was smaller was because, even though a company can't cut a pension of someone who's already retired, what they were doing was cutting the retiree health care. And, because the premiums for that come out of a person's pension, this has caused people's pensions to shrink steadily until, in some cases, they vanish altogether.

SCHULTZNow, Karen, I'm curious about what happened with your father because it -- regardless of whether it's a German company or a U.S. company taking it over, if he was expecting a pension of $4,000 a month, I'm curious as to where, you know, in the continuum that happened because it's -- I have seen cases where people are anticipating they'll have a certain pension and then there's a change or the plan is frozen and they end up getting much less.

SCHULTZBut this sounds like an extremely dramatic drop and I'd really like to know more about what happened there that could cause it to decline so much. And if you want to get in touch with me, I'd really like to hear more.

KNOYIs there a way for listeners to get in touch with you?

SCHULTZYes, they can reach me through -- I have a website, retirementheist.com and there's a way to contact me through that. Also, for some of their questions like this the Pension Rights Center in Washington, D.C. can be extremely helpful. They can help you find a lost pension.

SCHULTZThey can tell you if there's a pension counseling project in a state near you that will offer you, regardless of your income or status, they will give you free help in, not just finding a pension, but figuring out if you're being paid the right amount or if you have dispute with the company. You can get help from the Pension Rights Center or the Pension Projects.

KNOYWell, thanks for that call, Karen, and good luck. And, again, you can use those resources that Ellen just mentioned. Here's an email from Bob Volpe. He's president of EKRA, an association of Kodak retirees. Sounds like you know who these folks are. He says, "I really want to bring to listener's attention that there is no oversight for retiree health care. There is the infamous 'reservation of rights clause' that gives employers the ability to break the long-ago made promises leaving retirees with no recourse."

KNOYHe says, "We face a significant change in the social contracts in America as we compete globally with countries who have no support for people's retirement income and health benefits." Do you want to address Bob Volpe's comment? And, thanks, Bob, for that email.

SCHULTZYes, Bob points out quite correctly that you can't count, in many cases, if you're a salaried person, on the retiree health promise because even if they tell you in writing or verbally or both that if you leave now we'll give you coverage until age 65. If there is a clause in the technical document, which you might not see, then it doesn't matter what they tell you.

SCHULTZThey can change the game at any time and take it away. The companies overseas they do have an advantage over U.S. companies in that they have -- the government provides very good health care and the equivalent of Social Security, but what we've seen with, say, retiree health care is that companies have managed to cut the benefits anyway to profit and even a company like Kodak, which is famous for having had a wonderful benefit package over the years.

SCHULTZThey were just stellar. They stood out, you know, excellent pension, excellent health care. There have been so many changes there so that, even now, the retirees have very little protection pre-65 because they have essentially catastrophic coverage so if they get cancer or have a chronic disease their costs are not covered.

KNOYAll right, Bob, good to hear from. You're listening to "The Diane Rehm Show." If you'd like to join us, again 1-800-433-8850 is the number or send an email to drshow@wamu.org. And, Ellen, lots of emails. Here's one from Nancy in Alexandria who says, "How can we correct these corporate practices to protect workers?"

SCHULTZWell, there's a few things that could happen. There is a federal rule that says the plans have to be managed solely for the benefit of participants. That it would be nice if that were enforced because there are so many ways around it. Another is that it would be better if the plans -- companies had to fund their plans properly, if they're underfunded and, essentially, keep their hands off the money if it's in there.

KNOYWow, and you do need to understand what's going on. And it is really hard to read all this language. It's tempting to just, Ellen, say, ugh, I don't understand that.

SCHULTZWell, if you got -- every year you'll get an annual funding notice and that will tell you how well funded your plan is. Read that, pay attention to it and if it looks like it's not adequate and your company's in financial trouble, you should ask some tough questions about it. You'll also get an annual benefits statement that will tell you the pension you're entitled to and you really should take a look at that and, if you don't understand it, talk to the company.

SCHULTZIf you don't understand it after that, try and get somebody else to help you understand it, like, the Pension Rights Center.

KNOYPension Rights Center is a non-profit that just...

SCHULTZIt's a non-profit...

KNOY...helps people out with this?

SCHULTZYes, it does.

KNOYAll right. Let's take another call. This is Lucy in Dover, Tenn., hi, Lucy, go ahead, you're on the air.

LUCYHi, yes, you -- the author there keeps referring to the 1990s when this happened. This was happening decades before. In 1986 I worked at Western Union when our union, that's UTW, at the time, went on strike and found out that Western Union didn't have our pension fully funded. We were coerced into accepting part-timers and going into a 401K plan for the pension.

LUCYThe company eventually only contributed 6 cents on the dollar to our pension -- to our 401K plan. I am now on retirement and only get $211 from that pension. This all started when Reagan busted the PATCO union and all the other companies, ICON and several other executives, started raiding these pensions at that time.

LUCYIt was the 1970s, I believe, you mentioned that the steel companies were going belly up and they were leaving their 30-year employees out of pensions. So this wasn't just a '90s situation. This started decades before.

KNOYOkay, Lucy, thanks for calling in. What do you think, Ellen?

SCHULTZLucy, that's a very good point. There has always been this temptation for companies to try and manage the plans for their own benefit. And it's true in the '80s there was a big push, especially with the raiders -- you mentioned ICON who still is, you know, involved with companies that have made significant retiree benefit cuts.

SCHULTZBut, yes, it's happened from the, you know, '60s, '70s, '80s, '90s. What we're seeing now is just a different permutation. We have a huge cohort of people who are either approaching retirement or in retirement and they have no time to do anything different now. There's no time to save more money so they're really trapped.

KNOYWell, and you mentioned the Pension Rights Center before. We will put a link on our website, drshow.org, a link to the Pension Rights Center in case folks have more specific questions. So just real quick, Ellen, what's the bottom line if my company promised me a pension, should I count on getting it or not?

SCHULTZIf you are already retired, yes, you will get that pension. You'll continue to get it. They might erase some of it if they are increasingly charging you for retiree health benefits. If you're in a plan now and it's -- it's frozen, you are entitled by law to get the benefit that you've earned. So that's -- that's locked in.

SCHULTZIt's not going to grow, but you just want to make sure the plan doesn't get dumped on the PBGC without enough money. So keep your eye on that. Otherwise, if you're starting at a company, you really can't count on that plan providing you with an adequate benefit.

KNOYWell, Ellen, it's been good to talk to you. Thank you very much.

SCHULTZMy pleasure.

KNOYThat's Ellen Schultz. Her book is, "Retirement Heist: How Companies Plunder and Profit From The Nest Eggs of American Workers." I'm Laura Knoy sitting in for Diane Rehm. Thanks for listening.

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