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Even when your employer takes on a risk, it does not go away. This is a risk retirees cannot control or manage. Today when a company goes bankrupt and has an underfunded pension, the pension goes to the Pension Benefit Guaranty Corporation, where beneficiaries get a big haircut. Defined-benefit plans now exist mostly for public-sector workers, because those funds don’t face such stringent standards.īut even many of the few remaining corporate pensions still get it wrong.

Once federal laws forced plan providers to both properly fund defined-benefit pensions and use good accounting standards to measure their liabilities, it became clear how much pensions cost - and employers dropped them. Yet this increased oversight had a perverse effect. In response, the government stepped up its scrutiny. It was a terrible outcome for all involved. And when the pension funds got it wrong, retirees did not get the money they were counting on. Managing pension risk is difficult, and because the liabilities are so far into the future, there are always incentives to underfund. Participation only increased as corporations moved to cheaper defined-contribution plans. Only about a third of workers were active participants in a pension in the 1970s. That helps explain why, even at their peak, not that many workers had defined-benefit pensions. But just because these risks were on an employer’s balance sheet doesn’t mean employees and retirees were protected from them.Īnd managing these risks is extremely expensive. The idea - that your employer will keep paying your salary after you retire, and bear all the investment and longevity risk - sounds great. Less well understood is that defined-benefit plans were never that great for workers, either. Freezing the pensions for new hires in the 2000s was a big part of the reform that enabled them to stay competitive with foreign automakers.

It’s a commonly held view that defined-benefit plans contributed to the decline of US automakers. There are good reasons that defined-benefit plans are increasingly rare, and trying to bring them back makes about as much sense as trying to revive the US economy of the 1960s. That would be a mistake - both for the auto industry and its workers. Shawn Fain, the president of the United Auto Workers union, wants to bring back the old-fashioned pension.

Spectre download the last version for apple