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AT THE END OF EACH month, my pension arrives in my bank account. I can count on the same amount every month. It’s comforting.
In the old days, nearly 50% of working Americans had pension benefits. But it was never more than that. For most workers, the three-legged stool really only had two legs, Social Security and personal savings. Today, 76% of state and local government workers have a pension plan, versus just 12% of private sector workers. No matter how you slice it, most Americans are on their own when it comes to retirement savings.
There are several reasons traditional pensions have disappeared in the private sector. They’re expensive to fund and administer. They create large long-term liabilities for companies. Maybe most important, they only provide value to long-term employees. My pension is based on working for the same employer for nearly 50 years. That sort of tenure is highly unusual. In fact, private sector tenure of even 10 years was never common in any generation and, when it did occur, it was concentrated in large companies and certain industries, typically those that are unionized.
Given the disappearance of pensions, it’s no wonder so many retirees rely heavily on Social Security. But what’s curious is why we have a crisis when it comes to retirement savings. After all, to help those without pensions, we’ve had IRAs since 1974 and 401(k) plans since 1981. To be blunt, too many workers in the last half-century have put spending ahead of saving. And, yes, all but the poorest among us can afford to save—if we make it a priority and we make the necessary sacrifices.
I started my job at 26 and was provided a pension until at 45 the company quit funding it. It provided a more generous 401K to offset the change. I project my pension will provide me around $850 a month. If it would have continued funding it the next 10-15 years would have provided the most generous benefits. But I’m grateful for what I have. It will be a part of my 4-5 legged stool.
I’ve had responsibility for several pension plans over the years. Generally, they were underappreciated by the younger employees. With seniority driven unions and reductions in force over the years, very few young employees saw this as a benefit they could enjoy as the pension benefit is back end loaded and not portable. Having a portable 401k with a good match was a win for them and the company.
Absolutely. 30 + years is a long time to wait to see value and most workers don’t have that long-term view. Unfortunately, too many also can’t see the long-term view by using a 401k with discipline and patience. I think loans, hardship withdrawals and daily valuations were a collective mistake.
An “old-school” pension plan, from my perspective, was a tool of mandatory compliance by employers to enforce the golden rule of “paying yourself first” by their rank-an file workers, and reward longevity & loyalty by these same workers. It was also designed to protect these same employees who, (heavily influenced by the whims of a consumption-driven world) might otherwise not make the decision to invest for their future retirement needs.
Thankfully, more recent 401(k) and 403(b) plan offerings typically have (as the default option) automatic enrollment for new hires with a 3% wage deduction (typically 3% is the maximum needed to trigger an employer’s full “dollar-for-dollar” match of their funds). In my eyes, this is the modern-day equivalent of a pension. Granted, even with 6% annual pre-tax contributions, it’s still not likely enough to fill the