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Martha Stewart is out of prison. Bernie Ebbers, WorldCom’s former chairman, got 25 years. His chief financial officer got five. HealthSouth’s Richard Scrushy was acquitted. Sometimes it’s hard to keep up. But no one is confused in Washington. There, the powers that be are busily rolling back modest post-Enron reforms while putting a champion of deregulation-California Congressman Chris Cox-in charge of the Securities and Exchange Commission. The Wall Street meltdown apparently was just a blip. So keep an eye on your money-and especially your pension. Fear mongering, you say? Go ask a United Airlines pilot or flight attendant. They thought their pensions were theirs. They actually still belonged to (and were destroyed by) United, now in bankruptcy. And whatever the Pension Benefit Guarantee Corp. (PBGC) guarantees, it apparently did not include their pensions. United workers had corporate “defined benefit pension plans,” designed to guarantee a specific monthly payment in retirement based on years of service. These plans, considered the gold standard, are owned by a dwindling number of Americans (down from 53% to 34%) and are in trouble in the auto and steel industries, among others. How did this happen? Weren’t the watchdogs watching? During the late 1990s, when the greatest bull market in history pushed stock prices to all-time highs, corporate pension funds became overfunded by billions. Executives took advantage of this, cashing in stock options while slashing plan contributions to boost earnings artificially. Stock prices went even higher; pension portfolios increased as well. A virtuous cycle appeared to take hold. But then came the fall. The tech bubble burst, the market collapsed and with it went foolish assumptions that continuing equity gains would keep pensions funds fully funded. Old habits die hard. American corporations still are hiding their pension liabilities-for example, by assuming 10% annual return on pension investments forever. How likely is that, when 25% of fund assets are in bonds, which return far less? University of Missouri economics Professor Michael Hudson describes this as a “kind of ponzi scheme, in which present profits are paid for by the promise of future stock market gains.” According to the PBGC, corporate plans now actually have liabilities exceeding $450 billion. What about other forms of retirement? There are personal savings. In 1982, they stood at $480 billion; now they total only $115 billion. There are 401ks, held by 48 million American families. Hammered in the recent stock market drop, their median value is just $27,000-hardly enough on which to retire. And there are multi-employer or Taft-Hartley plans, relied upon by millions of working families. After taking a dreadful beating first from Enron, WorldCom and, more recently, Marsh & McLennan Cos. Inc., American International Group Inc. and Royal Dutch Shell, these funds are now under-funded by $150 billion. Empowered to sue for securities fraud, many are fighting back, litigating to recover at least some of their losses. Then there is the government: cops, firefighters, teachers and the like. They once had the safest retirement plans of anyone. But now those funds are in trouble too. Public funds paid out $78.5 billion in benefits in 2000; by 2004, that reached $117.8 billion, even before baby boomers retire. If public plans calculated their obligations as do the private, they would be $700 billion in the red. Pending legislation Some members of Congress are beginning to think about pensions. Charging that many companies are “booking phony investment gains to hide that workers’ pensions are going down the tubes,” Senator Chuck Grassley, R-Iowa, has introduced the National Employee Savings and Trust Equity Guarantee Act to crack down on such practices. The bill, co-sponsored by Senator Max Baucus D-Mont., would prohibit “smoothing”-calculating liabilities based on interest rates going back four years-that the Government Accountability Office says permits companies to appear far more financially stable than in reality. Having just unanimously cleared the Senate Finance Committee, the act would also allow workers to diversify their portfolios, avoiding future Enrons, where employees were locked in to holding company stock while insiders bailed and the company collapsed. A more modest bill, sponsored by Representative John Boehner, R-Ohio, with no Democratic support, is also moving in the House. Both may see floor action this fall. While a bit like throwing a pebble at a raging elephant, at least the elephant has been noticed. William Lerach and Albert H. Meyerhoff, partners at Lerach Coughlin Stoia Geller Rudman & Robbins of San Diego, represent the plaintiff class in the Enron securities fraud litigation.

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