One minute United was on the hook for $6.6 billion in pension obligations to its 119,000 people, the next it wasn't. And all it took was a nod from a federal bankruptcy judge.

At a time when the rules for personal bankruptcies just got a whole lot tougher, you'd think it wouldn't be so simple for United to just walk away from its responsibilities. Surely there'd be some kind of public penance the airline would have to pay. Its corporate officers would have to pick up trash along the highways. Clean public rest rooms. Something. Anything.

But no. UA gets to go on its merry way. And in relieving United of this burden, the bankruptcy judge saddled the already beleaguered Pension Benefit Guaranty Corporation (PBGC) with yet another pension default. And probably set the stage for Delta to follow in United's footsteps.

The reality is, the PBGC can't keep up with this default epidemic.

Although the government agency "guarantees" only about 40% of a "rescued" plan's benefits as it is (much to the horror of plan participants who were, of course, counting on the whole thing), the PBGC has fallen $23 billion in the red itself.

That's just a reflection of how many pensions it's backstopped.

But the worst, by far, is dead ahead. Pension failures are poised to happen across the board. Take automakers, for example. Ford has about $12.3 billion in unfunded obligations, nearly twice what United Airlines was just spared. Then there's Delphi, a huge parts supplier to the auto industry. It's considering Chapter 11 and wants to shed its pension with an unfunded liability of $5 billion. But that's just the tip of the iceberg.

All of this is making working people sweat. In a recent Chicago Tribune article, a 50 year-old GM worker worried about his company's future ability to pay his pension. "Are they going to do the same thing to me that Bethlehem Steel did? " he wondered. "Those workers thought they'd be retired and taking it easy, and they got screwed."

Corporate America isn't the only source of shrinking pension syndrome, though.

New Jersey is one of the many states about to spread it, too. According to Michael L. Diamond writing for Gannette New Jersey, "This year, the state will spend $1.9 billion for worker and retiree health care -- a figure that will rise to $2.1 billion next year. And the state will make only a $195 million contribution to the pension system, far short of the $1.4 billion needed to keep it fully funded."

Talk about unfunded pension liabilities!

Get the picture? With Americans growing older -- but living longer -- actuaries from years ago must have seriously screwed up estimating healthcare costs in 2005. Throw in the stock market collapse of a few years ago, the consequences of 911, compulsively spending politicians and the "corporate crook" factor, and it's not all that hard to account for today's alarming pension shortfalls.

But the real question is, what's the antidote? That's most on the minds of aging Baby Boomers, like that scared GM worker.

Can corporate pensions be safeguarded against the danger of default? Is there any way to hedge retirement nest eggs so they aren't put in one frail, little basket?

A big part of the problem has been the institutional snobbery of precious metals.

You see, it's not just older people living longer that are hamstringing America's pension plans. You can also blame investment strategies that stay stubbornly invested in paper.

Take that troubled New Jersey pension plan mentioned earlier. Its investment mix included 66.5% in stocks, 26.4% in bonds and fixed income, 5% in cash, and 2.1% in mortgages.

So how did it do?

Well, from March of 2000 to today, the fund sank $16.1 billion (from $85 billion to $68.9 billion) for a 19% loss. Not exactly the kind of return pension participants love hearing about.

Meanwhile, from the start of 2000 to today, gold has risen 49.6%.

How intelligent do plan administrators have to be recognize the diversification value of gold?

Which is not to say that gold is a perpetual winner. Anyone owning it in the later 90s can attest to that. But no investment stays hot or cold forever. And gold's role as a "negatively-correlated" diversification for longer term, mostly paper portfolios - like pensions - is hard to argue against.

The World Gold Council said it pretty well. "Recent independent studies have shown that traditional diversifiers (such as bonds and alternative assets) often fail during times of market stress or instability. Even a small allocation of gold has been proven to significantly improve the consistency of portfolio performance during both stable and unstable financial periods."

This negative correlation can be seen in the chart below between returns of gold and a number of leading stock market indices:

How can pension administrators miss this? Again, as the World Gold Council says, "Portfolios that contain gold are generally more robust and better able to cope with market uncertainties than those that don't."

Today, with so many "market uncertainties" coming our way, you'd think anyone with high stakes in a retirement plan would do whatever was necessary to get gold into their portfolios. That includes lobbying for a "gold option" in their plans, starting an outside Golden IRA or just cashing out, penalties and all, and putting a smart chunk of the proceeds into gold.

One thing's for certain, though: Time is running out to apply the antidote for shrinking pension syndrome.

Kevin DeMeritt
www.goldcentral.com
May 13, 2005