That is perhaps an unfortunate comparison to
1 month 3 weeks ago
Some things never change. In 1979-1980 National Journal held a series of roundtables and published a number of special sections funded by Xerox Corporation to inform work of the President's Commission on Pension Policy which was chaired by the Chairman and CEO of Xerox Corporation. One of the roundtables was on portability in defined benefit plans. At that point nearly all DB plans were annuity at retirement designs with 10 year cliff vesting. The Employee Benefit Research Institute (EBRI) presented job tenure information at that meeting which was most recently updated in a January 2023 Issue Brief (#578). With regard to DB pensions it concluded: Defined Benefit Plans — Since defined benefit (DB) pensions that are final-average plans have formulas
based on tenure and final average salary, workers who change jobs may not receive the maximum potential benefit
from this type of plan because they do not remain with the same employer for extended periods. In fact, short-tenure
workers (with less than five years in their jobs) may not qualify for any pension benefit at all due to five-year cliff
vesting schedules. Since the median length of employment for all wage and salary workers ages 25 or older is 4.9
years, even the decreasing number of American workers who are currently participating in a final-average DB plan are
unlikely to receive a significant benefit from the plan."
Like your mother, Nevin, my father got a monthly check from a DB pension. He also was provided retiree medical until his death at 93 years and 10 months. The employer he got them from is still a major provider of employee benefits to other employers, but terminated the DB plan in 1990 and ended its retiree health in 1984 for current workers and future retirees. I sat next to the CEO at a dinner in 1992 and asked why they had ended the programs. His answer was costs created by ERISA and subsequent vesting and funding rules and regulations from the government and FASB, and the PBGC. He opined that the system could have continued to provide for the about 10 % of workers that were hired and then still with them at age 65 when they could get benefits. The CEO noted that they were true "retirement plans" as opposed to the savings plans they now sold and serviced, noting that his insurance company no longer offered DB plans to other employers, and that Cash Balance plans should never have been deemed DB plans.
The type of Pension Portability promoted at that National Journal roundtable by the President of the Pension Rights Center would have simply accelerated the decline of DB plans. Cash Balance Plans might never have risen as a design and the shift to DC likely would have been even more rapid. It is somewhat ironic that the hearing praised IBM for re-opening a Cash Balance Plan and nearly eliminating the DC match - when it would appear the only reason was to make use of the pension surplus that was locked in the plan as a result of 1990's legislation. When the markets change and funding again drops below 100% I fully expect IBM will again freeze the plan and cut off new entrants. Last time they increased the DC match significantly to keep employees happy. Hopefully they will do that again. As long as our unsustainable public and private single and multi-employer DB plans continue there will be many retirees that are better off, but at the end of the line, when the unions and employers and the nation have to face up to dealing the cash needs of Social Security, Medicare and Medicaid, and the US Deficit, millions will find themselves dropping off a security cliff. Unlike the past, there will be no one to bail them out. Millions will wish they would have been treated like I was, if they knew my history. When hired at EBRI in 1978 as the first employee I was promised three years of employment as EBRI was created because of the annoucement by President Carter that he would be appointing a Pension Commission. In 1982 officers asked me to continue EBRI and promised they would establish a DB plan and provide retiree medical. In the later 80's the officers informed me that the world had changed and they would not provide a DB plan, but would provide me with top up payments on all salary beyond the DC limits, gross them up, and for me alone, provide grossed up payments for retiree medical savings. Come 2003 the officers told me they wanted to end the savings payments for retiree medical. It is worth noting that almost all of the C suite executives who were my officers at these benefit decision points were pension and health acutaries. By 2003 none of these firms still had an open DB pension plan or retiree medical plan while several had converted to Cash Balance Plans. And, since I retired from EBRI in 2015, what was a generous 401(k) match establised when EBRI terminated a 5% integrated Money Purchase Pension Plan and shifted the match to the 401(k) plan, has been dramatically reduced.
I watched the Senate hearing with a sense of Deja Vu that so many manage to ignore the facts and the hard data on DB plans in today's world, the ongoing decline, and the economic reasons for it. For all the warts of DC plans, and accepting that they were never established in the tax code to replace DB plans, thank goodness they have been there to assist in the inevitable transition created by public and private laws and rules and regulations. As the extensive work published by EBRI and undertaken for decades by Professor Jack VanDerhie and his research team, as as indicated by the job tenure publications by Craig Copeland, PhD, tens of millions of "short" tenure workers (5 years to 20 years max) are better off in this new world. It was no accident that the US Goverment decades ago to primary reliance on the Federal Thrift Savings Plan of that the Military did so early in this century. Both assured that the majority of those they hired would actually get some retirement savings instead of next to nothing, while most of the "deferred" compensation accrued to the 25% or less that spent a "career" with the civil service of the military.
I am old and very glad I have my Roth IRA. I have no dought that I will live longer than a DB plan created by EBRI in the 80's would have lasted; and certain that I will outlive payments that would needed to come from the EBRI operating budget for retiree medical had I accepted an unfunded promise "for life health reimbursement" as opposed to a medicated settlement.
The fiscal irresponsibility of governments and employers and unions - and yes, my former employer the PBGC - and their ongoing willingness to change the rules after a promise is made and to actually take a way a promise - should make everyone want a DC contribution - not what could become an unfunded DB promise and nonpayment. I am already planning for major reductions in Social Security and Medicare. I am creating my budgets with that in mind, and advise all those who care about retirement and health security to do the same. The pro DB witnesses at the Senate hearing live in a dreamworld that would, if enacted, lead to nightmares for millions as they fight to suvive after losing promised benefits. Deja Vu.
Dallas Salisbury
EBRI, 1978-2017
(ChooseToSave - Happily retired on DC accounts)
