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Pensions Go the Way of the Dodo
January 12th 11:54:55 AM
If the initials IBM once could have stood for I'm Being Managed, they now should stand for I'd Better Manage (myself).
Courtesy of www.KansasCity.com
Pensions go the way of the dodo
By DIANE STAFFORD
Columnist
If the initials IBM once could have stood for I’m Being Managed, they now should stand for I’d Better Manage (myself).
International Business Machines, once a lion of paternalism in U.S. industry, made news last week for freezing its pension plan for nonunion employees.
IBM joins legions of U.S. businesses in dropping defined-benefit pension plans in favor of contributing to workers’ 401(k) individual retirement savings accounts.
An easy prediction: We won’t be hearing about too many other pension increases like the one the International Association of Machinists and Aerospace Workers won from Boeing last fall.
Most American workers — at least those with employer-sponsored retirement plans — will be caught in an inexorable shift from pension plans to 401(k)s.
The problem with pension plans has been noted for years, at first with bankrupt companies like Bethlehem Steel, which forced the federal Pension Benefit Guaranty Corp. to take over its insolvent pension plan.
As financially hurtful as that was to Bethlehem workers, many other workers shrugged it off as isolated and understandable, given the corporate failure and its pension liabilities.
But the IBM announcement last week solidified the trend away from defined-benefit pensions.
It’s now clear that corporate insolvency is not a prerequisite for abandoning pension plans.
It’s also clear that many U.S. companies are saying they cannot compete globally if they continue to be saddled with their defined-benefit pension costs.
At the same time, Social Security’s ability to sustain future retirees continues to be doubted and debated.
The message: If you’re not now aggressively saving for retirement on your own, your retirement may not be what you’ve dreamed.
The guaranty corporation will make headlines for bailing out some troubled pension plans, but most defined-benefit plans will quietly go the way of the dinosaur.
In their place, employers who continue to offer a retirement savings plan to their workers are cutting benefit costs by contributing up to 10 percent a year of employees’ annual pay to workers’ individual 401(k) accounts.
That can be a good deal for workers only if they participate in the plan.
The problem to date is that American workers are woefully deficient savers.
About three in 10 workers have failed to take advantage of their existing employer-sponsored 401(k) offerings.
Because of this financial negligence, about a third of plan providers have opted for automatic enrollment of their employees in 401(k)s, according to a Society for Human Resource Management survey.
So, a bit of corporate paternalism returns.
If workers aren’t saving on their own volition, some companies are at least making them jump through a hoop to opt out of participating in the savings plan that the company is helping them fund.
The opt-in/out-out debate pales, of course, in comparison to the quandary over what to do with workers who have no employer-sponsored retirement plan.
If there’s no pension, and the outlook for Social Security is hazy, and individual savings rates are dismal … well, a comfortable retirement is just another dinosaur.
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Diane Stafford’s workplace column appears on Thursdays.
Reach her at stafford@kcstar.com or (816) 234-4359.
To read archived At Work columns, go to KansasCity.com and click on Business, then Columnists.
Posted by Adam Cahn
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