Baltimore resident Melvin Schmeizer thought he was prepared for retirement after working over 35 years at the Bethlehem Steel Corp. (search

Schmeizer, 56, said he was assured by the company that if it went under, his pension wouldn't suffer. But then the company filed for Chapter 11 bankruptcy protection (search), it was bought out by the International Steel Group and its pension fund was turned over to the Pension Benefit Guaranty Corp. (search) in 2002.

Schmeizer saw his $2,850 monthly pension reduced to $1,700 at the same time his health insurance premium for him and his wife went from $165 a month to $1,028 a month. Although he gets much of that premium back through a health insurance tax credit, he still is paying $357.80 a month out of pocket.

"I had worked a fair amount of overtime in the past to pay off our house and car loans early," said Schmeizer, in testimony Tuesday to the Senate Special Committee on Aging (search). "We had a plan to work for a good retirement and be worry free in our old age."

The hearing on how best to administer pension funds came as the General Accounting Office (search) released a study Tuesday that found long-term financial risks associated with "single-employer defined benefit pension plans" — like the Bethlehem Steel plan.

The report said more than 34 million workers and retirees participate in 30,000 single-employer defined benefit plans that are managed by the Pension Benefit Guaranty Corp. The plans are based on employees' salaries and years of service. Employers are responsible for paying for such plans, "investing and managing plan assets, and bearing the investment risk."

But the GAO also said the government-managed pension corporation's "long-term financial viability is in doubt." Several speakers compared the situation to the savings and loan crisis of the 1980s, when taxpayers were ultimately left holding the bag for failed thrifts, although none suggested that the situation is that bad yet.

The study examined annual reports from three pension plans that cost the pension guarantee corporation more than $4 billion in fiscal 2002: Bethlehem Steel, Anchor Glass (search) and Polaroid (search).

Barbara Bovbjerg, who testified on behalf of the GAO, said the three industries most vulnerable to being taken over are the steel, airline and automobile industries.

Witnesses compared defined benefit plans with defined contribution plans, which the GAO report said are "based on contributions to and investment returns on individual accounts, and the employee bears the investment risk."

"A defined benefit plan is a good idea for a certain type of person," said David John, a Heritage Foundation (search) research fellow.

He testified that an employer-based pension plan might be best for older workers who held one or two jobs their entire lives. But for young people just beginning their careers, defined contribution plans may work better because they're more likely to switch jobs several times during their lifetimes, John said.

Steve Kandarian, executive director of the Pension Benefit Guaranty, reminded the committee that workers have a right to know that their pensions are secure.

Pensions are "part of the wage-benefit tradeoff the workers have bargained for," he said, not a "tip on the way out the door. Workers have earned this."

Congress is currently considering several proposals aimed at shoring up pension plans. They include altering the interest rate that companies must use to determine whether they have enough in their funds now to pay off future liabilities, and making sure workers are better informed about their pensions and how they work.

But John reminded the committee that any action taken by Congress would affect peoples' quality of life.

"The simple fact is not just dealing numbers on a page," he said. "This is dealing with lives."

Schmeizer said he has learned to deal with the decrease in his income, though he would have continued working if he had known his pension was going to drop so dramatically.

And that, Bovbjerg said, is part of the problem with administering pension plans — workers sometimes do not understand how the plans work.

"Workers generally are not very well informed," she said.