August 4, 2008 9:25PM
Death of the Pension Plan
By Alexis Glick
Have you been reading about the pension plan failures at the big three automakers and airlines? The number of pensions that are underfunded and at risk grows every single day, and the threats to your hard-earned work are greater than ever. The good old days of “sock it away and your nest egg will be ready when you’re due to retire” have passed. It’s time to wake up and do some homework about your pension plan and protect yourself against the failure — and possible death — of the pension plan.
Today, I spoke with Bradley Belt, chairman of Palisades Capital Advisors and one-time CEO and executive director of the Pension Benefit Guaranty Corporation, a wholly owned government corporation that insures pension benefits for more than 44 million Americans. At one point, he was also an advisor to the current administration on pension and retirement security issues. Belt joined me for a real look at the current state of pension programs and to discuss the likelihood of them being around in five to ten years.
I was then joined by John Bury, an enrolled actuary and vocal critic of the lack of enough action on the part of the Pension Benefit Guaranty Corporation and on the part of individual corporations that have failed to live up to the proper standard of funding their pensions. He checked in to discuss the biggest issues facing pensions and what we can do about it.
Please watch the video. It is a must for anyone who currently has a pension plan. Frankly, it’s disturbing and eye-opening.
Comment by Mary Jo
Aug 5th, 2008 at 3:17 pm
Realistically, if the vast majority of Americans are to have adequate retirement income, the primary source of retirement savings must be income from work. Not every American can count on a generous inheritance.
Having said that, the shift from defined benefit plans to 401(k) type defined contribution plans has put many Americans at risk for falling short of having a comfortable retirement income.
Statistics show that individually managed portfolios will fall short of professionally managed portfolios by 1-2% per year. This means that even with the same employer contribution, employees could expect to receive less.
Comparing termination income from a 401(k) plan to termination income from a defined benefit plan ignores the value of the ancillary benefits often provided through a defined benefit plan such as disability retirement income.
Unlike DB Plans, 401(k) Plans allow employees to exercise their preference for immediate consumption, thus consuming their future retirement, often on wants, not real needs. It is easy to argue that each person is responsible for their own savings, but the fact is, Americans are not good savers. When the poor savers are old and need help, will we just tell them they should have saved more?
The ideal retirement income package has a defined benefit for a base annuity income that you can’t outlive, supplemented by a 401(k) plan to cover extaordinary expenses, health care cost increases and inflation.
Comment by Rosie
Aug 5th, 2008 at 7:36 pm
GM’s union pensions are funded for years. They purchased bonds to fund the pension and they will not have to add additional money for years. The CEO and other higher up’s pensions are the ones that is in so much trouble.
Comment by m s
Aug 6th, 2008 at 9:16 am
notice that Belt didn’t mention as one of the culprits corporate executives who chose to fund their plans at the minimum levels in order to show greater profits so that their bonus and option packages would increase in value. one of the key issues in the decline of the db plan is the fact that most of the retirement income for executives comes not from pension plans but from golden parachutes, termination packages and stock options.