Tags: Verizon | Latest | Slash | Pensions

Verizon Latest to Slash Pensions

Friday, 09 December 2005 12:00 AM

Pensioners at Enron and US Airways can now commiserate with the newest members of the club – Verizon employees.

The cell phone/Internet giant is the latest American company to ditch or scale back its expensive defined-benefit plans.

According to USA Today: "The traditional pension, once considered a bedrock of retirement, is eroding for many American workers – and working for a financially strong company is no guarantee a full pension will be there at retirement."

And the Verizon decision should accelerate that erosion process.

According to company statements, over 50,000 Verizon managers are out of luck when it comes to receiving pension benefit credits after June 30, 2006. The managers will be given the option of switching over to 401(k) plans, where employees assume the burden of managing their retirement assets. However, current Verizon retirees are exempted from the cutbacks and will receive their full pensions.

Company executives are hiding behind the "ownership" benefits of defined-contribution plans like the 401(k), as if the money they earn in a company pension plan isn't theirs.

Says Verizon CEO Ivan Seidenberg in a company statement: "The changes will also provide employees a transition to a retirement plan more in line with current trends, allowing employees to have greater accountability in managing their own finances and for companies to offer greater portability through personal savings accounts."

But others aren't so sure.

According to Karen Friedman, director of the Washington-based Pension Rights Center: "If a company as large as Verizon goes in this direction, it could encourage others to do likewise – to the detriment of the retirement security of millions of American workers."

And now, a liberal lobbyist group called the American Progress Action Fund (APAF) has released a position paper declaring that other telecom companies already have plans to scale back their pension programs.

Says the group: "Many big telecom firms have already taken such steps, with Verizon being only the latest in a long string of companies to decide to halt the growth of its pension plan either to remain competitive, save

The APAF names Hewlett-Packard and Motorola as firms that are actively planning to slash pensions. It also cites AT&T and BellSouth as companies that are "considering" cutting their programs.

Says APAF analyst Robert Rosenberg: "Chances are, when they see (Verizon) they'll all be huddling up. This most likely will be the first of several similar announcements that we'll see."

If that's the case, then the Pension Benefit Guaranty Corp. (PBGC) – which is already groaning under the weight of massive pension obligations – will face even more shortfalls.

The agency's accumulated deficit has reached almost $23 billion, says the APAF.

On Friday, bullion hit $530.75 an ounce, marking its highest level in almost a quarter-century.

And as gold hits record levels, there is talk that Asian central banks are considering an about-face by diversifying some of their reserves into gold.

But according to Reuters, despite the precious metal's strong performance over the last four years, the banks are merely window-shopping – for now.

"We are aware from our own contacts and from market reports that there is renewed interest in gold by central banks. However, they have a very long decision making process, so we are not expecting any immediate purchases," Jill Leyland, economic adviser to industry-sponsored body World Gold Council, tells the news service.

"In effect, it's like turning round a supertanker, and we're not there yet."

Over the last decade, central banks have generally sold off their gold because of its relatively low yield, and European banks recently agreed to sell no more than 500 tons a year.

But as gold outperforms other assets – stocks, bonds, currencies – Asian institutions are taking a second look.

However, some experts think the gold talk might just be rumor.

"We've been hearing these arguments for the last three years, but up until now we've seen little sign of anything concrete," HSBC metals analyst Alan Williamson told Reuters.

Currently, Asian banks hold very little gold compared to Europe and the United States, so they would be hard-pressed to amplify their stock without causing havoc for the gold market.

Gold's value has spiked in the last quarter, as demand from producers and speculators has absolutely shot through the roof, sending the price of the precious yellow metal up by as much as 16% from $455.50 in November.

Investors usually buy gold as a hedge against either inflation or deflation,

Prices of other metals joined in the rally – with copper, aluminum and silver

Economic guru and Newsweek legend Robert J. Samuelson says the recent run-up in gold is not so much about stocking up on precious metals before an economic Armageddon.

Rather, he says, it has more to do with that old standby: supply and demand.

"Gold retains an economic mystique," he writes.

"About 85% of annual consumption goes for jewelry and, to a much lesser extent, other commercial uses – mainly electronics and dental work. But the recent price run-up seems driven by the remaining 15%: investors, speculators and hoarders."

"These include commodity funds, hedge funds and wealthy individuals. Especially in Asia and the Middle East, the rich hoard gold bars. In the first nine months of 2005, the investment and speculative demand for gold rose 62%, reports the World Gold Council ..."

The usual explanations for an upward spike in gold don't apply in the current run-up environment.

While gold is an oasis in a sluggish dollar environment, the greenback has fared well lately. In inflationary cycles, gold is an even more valuable commodity, but inflation has abated in late 2005.

"Maybe the real culprit is true scarcity," writes Samuelson.

"Copper is now selling for about $2 a pound, up from about 70 cents four years ago. At $60 a barrel, oil has doubled since late 2003. In each case, global demand – influenced heavily by China and India – has squeezed available supplies. Gold could be the same."

He notes that gold had been on a 20-year slide from 1980 through 2001, when the metal fell to $270 an ounce.

But burgeoning middle classes in countries like China, India and even Pakistan have boosted interest in gold, which is now selling at over $500 an ounce.

"Jewelry is often more than adornment; it's also a store of wealth," writes Samuelson.

"Consider India," says George Milling-Stanley of the World Gold Council.

"For thousands of years, [gold jewelry] has been a means of savings. Seventy percent or more of consumption is among the rural population. They don't have access to banks, stocks or bonds. They don't trust government or paper currency."

If you accept that point, then it's a straight line from high demand to higher prices for gold. True, some profit-taking can keep gold prices from moving too high, but the real concern about gold's long-term success is whether supply will overtake demand. And will those rapidly developing middle-class speculators in India and China bring more buyers to the table?

The point, Samuelson concludes, is that there really is no substantive explanation for gold's upward climb over the past four years.

"Whatever happens, the fears and anxieties that give gold its speculative appeal could intensify or dissipate. Gold is an unending mystery, because its value lies less in what it does for us (unlike sugar, copper or oil) and more in what it symbolizes. It is almost as unfathomable as the human drama itself."

109-109

© 2019 Newsmax. All rights reserved.

   
1Like our page
2Share
Pre-2008
Pensioners at Enron and US Airways can now commiserate with the newest members of the club - Verizon employees. The cell phone/Internet giant is the latest American company to ditch or scale back its expensive defined-benefit plans. According to USA Today: "The...
Verizon,Latest,Slash,Pensions
1235
2005-00-09
Friday, 09 December 2005 12:00 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
America's News Page
© Newsmax Media, Inc.
All Rights Reserved