Are Employer Pensions Reliable?
Pension plans have been the cornerstone of retirement income for many Americans. With a good pension plan, an employee does not need to worry about saving money or any other means of providing income during retirement. Pension plans, unfortunately, cannot be relied upon as they can always be changed or eliminated.
We can see many examples of pension plans that have been modified or eliminated in recent years. California, Illinois, and New Jersey have made pension plan changes for state employees in 2010. Many other states and municipalities are considering similar changes. A government employee should consider himself lucky if his pension remains unchanged in the near future.
Corporations are also making changes to their pension plans. IBM froze pension benefits for its employees, offering only a 401(k) plan from 2008 forward. Verizon, Hewlett-Packard, and Motorola made similar changes. Due to the current recession and an uncertain economic future, many companies are looking for ways to save money, and pension plans are a convenient target for cuts. Reductions to pension benefits will not affect service or product offerings, and don’t affect customer experience.
Even if the company doesn’t make changes to its pension plan, employees can still find themselves with reduced pension benefits. In 2001, Bethlehem Steel declared bankruptcy. The Pension Benefit Guaranty Corporation (PBGC), a federal agency that insures pensions, took over the administration of Bethlehem Steel’s pension plan. PBGC cut pension benefits by one-third, leaving employees with much less retirement income than they expected.
The only pension plans that are reliable are ones that are completely funded, and the employees have a binding contract guaranteeing their right to those funds. If the employer has any rights to change the plan, or the money doesn’t exist to fund the plan, then the employees may find themselves with reduced benefits or no benefits at all.
In the past, some employers offered significant benefits to retirees for the remainder of their lives. This type of retirement plan is virtually non-existent anymore. Going forward, Americans will need to make careful plans for retirement income, unless they prefer to work their entire lives. This is an unfortunate fact of our lives today, but with proper planning most Americans could still have enough retirement income.
Pension plans have been sufficient income for retirement for many Americans. With so many employers making reductions to their plans, employees should consider alternatives to fund their retirement. Pension plans, 401(k), Social Security, and personal savings should be part of everyone’s strategy for funding their retirement.