With the likes of IBM, Verizon, Alcoa and now General Motors announcing the end to their traditional defined benefit pension plans, analysts and commentators can't get into print fast enough their glee at seeing the old order replaced by the new and improved defined contribution schemes. James Glassman's article 'Good Riddance to Traditional Pensions' is typical. Attacked as unaffordable paternalistic anachronisms, defined benefit plans are the villains responsible for weak balance sheets, mediocre profit margins and unproductive employees stuck in an entitlement rut.

There is no question that much of the criticism is justified. Accounting rules that prevailed until the late 1980s obscured the undisclosed quickly mounting liabilities ignored by company treasurers more willing to buy back company stock than properly fund their pension trusts. And many companies designed excessively generous benefit packages, behaving like government bureaucrats,  guaranteeing retirement income for life at 50% of a worker's final pay after only 30 years of service. For the most part, these structures resulted from collective bargaining with the most powerful unions — autoworkers, steelworkers, machinists and communications/utilities workers — under protectionist trade policies, quasi or real monopolies and before the Japanese auto and consumer electronics giants launched serious global competition. The trade offs often were lower wages now, though still far ahead of inflation, in exchange for enhanced pension benefits to be paid later—all in the name of labor peace, oblivious to the accumulating storm clouds of global trade wars.  Despite their dubious origin they became part of national income that drove the US economy.

And so many pension plans are in trouble for the same reason that many traditional companies are in trouble or have already folded: lousy management. The same lousy management that presided over poor quality, uninspiring new product designs and indifferent customer service didn't manage pension plans any better. Who is responsible for incompetent pension asset trust stewardship and inefficient pension designs out of phase with the changing needs for employee productivity? The same people who are now petitioning bankruptcy courts. It shouldn't be surprising  that General Motors, so talented at losing nearly half of its market share over 25 years, couldn't figure out how to make its pension plan work and now blames pensions for its pas de deux with insolvency.

The most popular replacement for defined benefit plans is the 401K plan—around for over 20 years — the current darling among the 'Dump Pensions Now' bumper sticker crowd. Boosting national personal savings, placing investment ownership and choices in the hands of employees, the 401K is hailed as the magic elixir, allowing retirement savings to be carried along as the new generation of workers hopscotch from one unfulfilling job to the next or escape from one failing start—up dot com to another.

Of course, amidst all of the hype over 401K plans, the dirty little secret remains that over a comparable working career they deliver far fewer retirement resources than what traditional pensions have provided. Touted as a tax deferral available to every average Mary and Joe, FICA taxes must be paid by both employer and employee on each employee contribution. And, as Tom Terry,  president—elect of the Conference of Consulting Actuaries pointed out in Employee Benefit News last month, individual personal accounts underperform  professionally managed pension asset trusts by over 125 basis points every year. Moreover, there is no guarantee that companies will be faithful in funding the company match , as salaried employees of Ford Motor Company found out when their 401K match was suspended in 2002.

Who suffers from ineptitude displayed by the occupants of so many executive suites and their infatuation with protein starved post—retirement diets? The most obvious victims are rank and file hourly and salaried workers and middle managers. They always pay the price for senior level screw—ups and myopia. But have we overlooked the more pernicious effect on GDP?  Don't forget that pensions are part of total compensation, just delayed. When pensions are cut, pay is cut, no different from wage and salary concessions or lost wages from unemployment; thus national income is cut but this time on a scale not seen since the 1930s.

Reduced pensions will soon exacerbate the financial stress on retirees from the simultaneous elimination of company subsidies for post—retirement health care. Together these effects are like the conflux of two northeast Atlantic gales leading to serious erosion on the buying power of the fastest growing demographic group—baby boomers and seniors. In the meantime,  the next generation of active workers, in lower income jobs (to start with), will face the inevitable higher taxes to finance government—sponsored health care required to fill the breach, further hindering their ability to drive the economy now let alone save for the future.

By the next generation over 20% of all Americans will be age 65 and older, compared to fewer than 13% in the year 2004. This group's disposable income — a significant engine driving the consumer led US economy—will be as much as 50% less than today's retirees. In an irony of self—preservation, the very companies who thought they were so clever in engineering out defined benefit pension programs will be startled to discover many of their consumers, now pensioners crushed by staggering health care costs with only dwindling 401K accounts, can't afford to buy their own products.

This isn't to say all companies are following the thundering herd into the canyon of oblivion. Well managed companies such as  General Electric, DuPont and Johnson & Johnson among hundreds of others still deliver impressive returns to shareholders and have strong traditional pension platforms. Even US Steel's pension plan, after years of restructurings and hard times, is healthy, and a year ago SBC Communications (now the reformulated AT&T) announced it was restoring its defined benefit plan after having dismantled it,  finding they had trouble competing for high performance long service career minded employees. Yet these companies, defying the pundits, are a diminishing breed and may be swept up in a  Keynesian downward spiral, more resembling a Kafkaesque tunnel.

During the latter half of the 20th century privately funded defined benefit pensions distinguished the US from the rest of developed countries around the world. This private system, along with the purchasing power of immigrants, was expected to inoculate us well into the 21st century from the economic ravages of the age gap, now the arteriosclerosis of old Europe. As traditional pension plans are abandoned, our advantage over the rest of the world may soon vanish.

The perils of asset deflation on the US economy are well known, widely discussed and wisely feared. An equal threat, due to the demise of pension plans is wage and salary deflation which no one dares mention. Can a high birth rate leading to a growing productive work force command enough purchasing power to offset the decline in buying power from retirees? Not now—not with so many American companies unable to compete for new product technology, customer service leadership or high quality, who will instead cling to their last remaining competitive gasp — outsourcing labor to low cost countries and dumping pension plans — all the while eroding the purchasing power of their very own customers in the illusory pursuit of shareholder value.

Geoffrey P. Hunt is a senior executive in a multinational manufacturing company.