The move to freeze pensions at solid, profitable companies like Verizon—and at others, including IBM, Sprint, Nextel, Tribune Corp., Lexmark, Alcoa and Russell Corp.—is the latest sign of pressure on traditional guaranteed pension plans. "It's an entirely new phenomenon for healthy companies to freeze their pensions," says Alicia Munnell, director of the Center for Retirement Research at Boston College.
In 2003, 41 percent of workers with pension coverage had defined benefit pensions, down from 83 percent in 1980, according to the latest data released in February by the center. For the last several years, employees in struggling industries such as airlines, steel, coal and textiles have watched as their firms declared bankruptcy and terminated their plans altogether. And more may be in trouble, particularly in industries such as auto parts.
Not only that, new regulatory and legislative changes now in the works could encourage companies to freeze their pensions—or get out of the pension business altogether. And questions are being raised about the funding of pensions for public-sector employees.
Yeah, about those public sector pensions...
Treasury Secretary John Snow notified Congress yesterday that the administration had taken "all prudent and legal actions," including tapping certain government retirement funds, to keep from hitting the $8.2 trillion national-debt limit.
6 comments:
I'm so glad I entered the workforce with no expectation of a pension. But I'm still mad that retirement fund contributions eat into my clothing budget. My employer should give me more!!
Companies have really cheaped out by switching from fat lifetime annual payments to putting up to 5% of one's salary into a 401k. They should contribute way more than that, since their cost per employee is now a small fraction of what it used to be.
SWA said it good; Gabby Hayes good. Pensions have traditionally been part of an employee's compensation package, not a freebie employers give out just to be nice.
You know, these businesses could all cancel their pensions and scrap their health care plans, and we'd still have people in this country digging in their heels against government-led "socialized medicine" as a remedy.
Capitalism should be about capitalism. Period. Leave the welfare aspects to the government, which can pool all the risk in one pile and remove the fears of losing coverage when you lose your job. And then our businesses can be freed of the costs and headaches and compete squarely with all those European and Japanese companies who don't have to deal with dental plans either.
But, no, that would make us like the commies.
By the way, the thing about the government borrowing against government pension funds? That's actually not the classic defined-benefit pension fund; the gubmint did away with that a long time ago. There are still some older federal workers who were grandfathered in to the defined-benefit pension, but everyone else is in a 401k-style retirement plan.
The government is going to borrow money from one of the mutual funds in the 401k-style plan, the G fund.
SWA is right on. What really gets me peeved is that nowadays, companies like, say, United Airlines can file for bankruptcy and have their pension obligations dissolved, which is essentially the same as a company going to their workers and demanding a large chunk of the salary they received for the length of their employment back.
Yet no fatcats (yes, here we go with the fatcat bashing..) are asked to return any bonuses they received above and beyond their salary.
And OM makes a cromulent point about how increasing health care costs are affecting businesses ability to compete. Our country grew prosperous under the old social contract. If we decide to scrap it, fine, but something needs to fill the vacuum.
I think that, in time, employers will contribute more to their workers' 401k plans. I agree that a company should pay expenses only for current employees. In time, they'll all be offering larger contributions due to competition. The current rate of ~5% of one's salary is just too stingy to be much help in growing the nest egg of a worker they want to keep.
Companies are trying to ditch their expensive healthcare plans too, which makes sense. I'd rather have an insurer I like instead of being at the mercy of what my employer offers, because I have to change plans every time I change jobs. Health insurance should be separate from employment, like car insurance.
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