# The Beholden Years

After I was done writing Broadbandits: Inside the $750 billion Telecom Heist, many telecom insiders kept writing to me, lamenting the loss of their pension funds. Engineers who once worked for the most fearsome company in the world, AT&T were looking for part time gigs at Home Depot. For some odd reason, I kept notes, hoping that one day I might write an update to the book. Somehow I didn’t. Five years later, I see that most of the Broadbandits are walking around free. Their billions salted away for enjoyment of future generations. So what that many in my adopted home face tough times, thanks to a retirement system that is in shambles. Americans generally use two vehicles to save for their retirement years – the 401K plans, where an employee puts away a little something from his paycheck directly into this account and the defined benefit (DB) pension plan, where the employer puts a little something in a special account from which the employees are reimbursed once they retire. Like 401k plans, the DB pension plans also try to multiply their money by investing in stock markets, money market funds, bonds and even real estate. These plans are like a private mutual fund run by the company. During the boom years of the1990s, many companies saw capital in their funds soar as booming stock markets inflated the valuation of their holdings. At that point many of these funds, just like the US Government, were running a surplus. But with the economic downturn this situation has reversed. Watson Wyatt, a research group, conducted a study and found that the percentage of under-funded plans more than tripled from 15% in 1992 to 52% in 2002. Things haven’t changed much since. A senior portfolio manager at a New York hedge fund said in an interview that in order for these funds to come back to fully funded status, the stock markets have to grow at 15 percent every year, over the next two decades. US stock markets have historically grown at 11 percent every year, and that is in the best of times, so the kind of growth needed is not likely to happen. “We’re not likely to see as good returns as we’ve seen in the past, because the market has gotten so high,” Robert Shiller, an economist at Yale University and the author of “Irrational Exuberance,” told Business Week last year. Merrill Lynch estimates that the pension liability of 348 S&P 500 companies is somewhere between$184 and $342 billion — much lower than a reported$2 billion surplus in 2001. But these are just vague estimates. Until 1997, Pension Benefit Guaranty Corp. (PBGC), a quasi-government agency, published a survey that listed the 50 most under-funded pension funds. It had to stop publishing such a list under pressure from the industry. Today it is unclear which company’s fund is under funded and that alone is scary.

The pension fund shortfalls have a serious human cost. On the fifth anniversary of the bursting of the bubble, I want you to think about the former employees of WorldCom, Enron, Qwest, and every name that reminds you the bubble and its excess. Everytime you think of Bernie Ebbers, remember, there are thousands who are still struggling to put their lives back together.