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URL:  http://boards.fool.com/yes-bankruptcy-to-avoid-pension-costs-has-already-20362975.aspx

Subject:  Re: IBM Must Pay in Pension Switch Date:  2/21/2004  12:32 PM
Author:  pauleckler Number:  39330 of 75611

Yes, bankruptcy to avoid pension costs has already been done in the steel industry. You would expect that all of the smokestack industries with large pension liabilities will be looking at that as an option. Those in strong businesses--like say GE--will probably find a way to pay the benefits. But those who are already in deep difficulty and who have been offerring early retirement as an incentive to reduce their work force will probably look carefully at bankruptcy. In addition to the auto industry (which has gross over capacity and is rapidly gobalizing), I would add airlines to the list. They have already used bankruptcy to renig on labor contracts. To abandon pension benefits would be nothing new.

The fundamental problem here is the high expectations of the public which follows directly an era of good times. People now expect to be able to retire younger and younger with full benefits. Companies have listened to those dreams. But now they must be able to earn the profits to pay for those promises. If not, bankruptcy is a device to abandon them. And in the case of Bethlehem steel, they sold the operating assets and then bankrupted the company with the pension assets. So some of the plants can continue to run without being burdened with pension "legacy" costs.

The last time we had such high expectations was the 60s. That led to high inflation, high interest rates, and a whole generation of battles before industry "consolidations" turned into downsizings. We also had a liberal Congress that was entrenched for years after people began to elect more conservative presidents.

It was a era of chaos while the public came to realize that its high expectations were beyond the possible.

Another round of adjustments seems to be in the making.

IBMs big mistake seems to have been that they forced the system on retirees to the detrement of more senior employees. In the future, employers will probably be careful to cushion the transition--offering a few perks for those who make the elective change, maintaining the old system for those senior employees, or smoothing the transition.

I'll bet this has already been factored into most new defined contribution plans.
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