You're Not Set for Life

Every so often, PBS reruns its superb documentary on the history of Bethlehem Steel. One of the most poignant lines comes from the wife of a Bethlehem Steel employee, who said, "Bethlehem Steel was a giant. You knew if you worked for a place like that, you were . . . set for life."

But Bethlehem Steel went bankrupt, and retirees who thought they were "set for life" found themselves out in the cold instead. As Lantz Metz, a historian with the National Canal Museum, pointed out, "The human tragedy [of Bethlehem Steel] is not so much the loss of jobs . . . The human tragedy is the many, many people who were dependent on benefits which they thought were guaranteed."

And it could happen again.

A cautionary tale
Over a century and a half of American history, Bethlehem Steel built the iron bones of our nation. But by the 1990s, Bethlehem's own bones had become frail. Wracked by debt and beset by foreign rivals, Bethlehem struggled to earn the profits needed to pay salaries to 11,500 workers and the pensions for 120,000 retirees and dependents.

In 2001, Bethlehem gave up and filed for bankruptcy. A year later, it transferred its pension obligations to the U.S. Pension Benefit Guaranty Corporation (PBGC).

In one fell swoop, Bethlehem's retirees -- people who had already fulfilled their side of the social contract -- were put at the mercy of the federal bureaucracy. The problem was that mercy isn't bureaucracy's strong suit.

The PBGC reneged on Bethlehem's agreement to let workers retire on full pensions after 30 years. When the PBGC took over, the 30-years-and-out agreement was scrapped, and workers got the standard deal: Retirement at age 62, period. Even if you were only a week away from your 30th anniversary, if you hadn't crossed the finish line, the PBGC erased it under your nose.

Nor were retirees any safer. You see, when pensions are underfunded, the PBGC doesn't always make up the difference. In Bethlehem's case, the PBGC determined that the pension fund needed a cash infusion of $4.3 billion. The PBGC made up much of the difference.

Unfortunately, Bethlehem's employees and retirees had also bargained -- and worked -- for the promise of health-care coverage in retirement. The PBGC calculated the value of that promise at $3.1 billion -- but didn't cover a dime of it.

"It could happen to you"
Heed the prophetic words of Ed McMahon. A recent study conducted by Merrill Lynch listed 40 U.S. companies with significantly underfunded pension obligations. As you might expect, the list includes smokestack industrialists such as Dow (NYSE: DOW), Alcoa (NYSE: AA) and U.S. Steel (NYSE: X). As of December 31, 2008, the three firms' unfunded pension liabilities totaled $8.2 billion.

More surprising are the representatives of industries you might not expect to be in this situation: massively profitable biotech shops like Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE), for example, as well as black-gold rollers-in ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX).

What all these companies have in common is that they date from the era of the old social contract: You give your employer the best years of your life, and in return for your loyalty, and for taking a lower wage than you could have earned elsewhere, your employer will provide you a decent pension in your golden years.

It's time to master your money
Now every story needs a moral, and this one is no exception: The age of the old social contract is kaput.

Whether by design or incompetence, the managements of many of America's greatest companies of yesteryear are today unable to keep their word. As Steve Miller, the man brought in to "save" Bethlehem Steel in 2001, put it: "We do not have the money to make good on all the promises made by this corporation over the last 50 years."

If you're nearing retirement, or if you've already retired and depend on your former employer to keep paying your benefits, it's time to ask yourself how much faith you have in management.

Are you certain that your employer actually has the money to honor its promises? If you're not certain, then you need to do something about that. Because the sad truth is, there's only one person who can make your retirement secure for yourself and your family: You.

But here's the good news: You're not alone. At Motley Fool Rule Your Retirement, our sole goal is to help you be sure that when you're ready to retire, you're able to enjoy it. Take a free trial of the service now -- absolutely free. If you're not 100% thrilled with the service, we'll give you 30 days to cancel with no questions asked, no strings attached. Just click here to get started.