Are Pensions Dead?

Fifty years ago, an employee's last working day looked something like this: a company party filled with cake, balloons, and a ceremony with some kind words from the boss for "a job well done for 40 years of dedicated service," accompanied by a gold watch, a pat on the back, and a room full of smiles.

But the biggest smile of all was on the face of the retiree. Not only did he know that he'd never have to set his alarm clock again, but he also knew he'd receive a check in the mail, which he could set that gold watch to, for every single month until the day he died. But those days are nearly over.

Not your grandfather's pension
Pensions have become a much smaller piece of Americans' retirement savings mix over the past several decades. Specifically, during the past 15 years, employers have shifted their retirement offerings for new employees away from the traditional pension plan your grandpa probably received. In 1985, 89 Fortune 100 companies offered a traditional defined benefit, or pension, plan to newly hired salaried workers. Today only 11 companies on the Fortune 100 list offer such as traditional pension plan. Meanwhile, defined contribution plans -- think 401(k)s -- have become the norm.

We can chalk up the main reason for the trend to simple dollars and cents. Increased life expectancy, persistently low interest rates, and amplified stock market volatility are all working against traditional pension plans. In addition, many corporate plans must now dig themselves out of massive pension deficits because of not enough money pumped into the plan, coupled with poor planning and flawed assumptions. Put simply, companies don't want the exposure on their balance sheets and the drag on their bottom lines.

In fact, during the most recent earnings season, both Ford (NYSE: F  ) and Goodyear Tire and Rubber (NASDAQ: GT  ) disclosed gaping pension shortfalls. In fact, last year alone, Ford’s pension deficit widened by a cavernous 21%. Goodyear contributed nearly $650 million to its plan in 2012, up from a $233 million contribution in 2011. Yet its plan's funded status is in the hole an extra $400 million versus one year ago. Meanwhile, UPS (NYSE: UPS  ) reported a fourth-quarter 2012 loss, resulting in part from a $3 billion non-cash pension-related accounting charge. The company faces a $225 million rise in pension costs for 2013. 

Pensions getting pink slips
But some companies are putting the ax to their pension plans. In an effort to ease its burden, Ford recently offered pension buyouts to roughly 100,000 qualifying former workers and retirees who held white-collar positions with the Detroit automaker. And last year, General Motors (NYSE: GM  ) offloaded a large chunk of its liabilities to insurer Prudential Financial (NYSE: PRU  ) , trimming its pension liabilities by more than $25 billion. By no means did this move completely shuck all of GM’s obligations off the books, but it significantly eliminated a big drag on the automaker’s bottom line.

What employees want
A 2010 survey showed that 84% of Americans think it's time for new and improved workplace retirement plans. That's a lot of disgruntled employees. But unfortunately, an overwhelmingly large number of employees have a difficult time planning for their own retirements. According to a recent study conducted by the Employee Benefit Research Institute, "Fifty-seven percent of U.S. workers reported that they have less than $25,000 in total household savings and investments, excluding their homes." As a result, we're woefully underprepared for retirement.

In the end, people want piece of mind that they'll have more dollars than heartbeats. Traditional pension plans of yesteryear gave the security of knowing you'd receive guaranteed income for life. That's any worker's dream come true. But these days, having a traditional pension plan doesn't carry the same sense of security it once did. Instead, the responsibility falls squarely on each of us to plan and save for our own retirements.

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Read/Post Comments (10) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 30, 2013, at 6:09 PM, herky46q wrote:

    Sure seems like it. The federal government, for employees under the new system, have a reduced pension, the 401k type plan and Social Security that form the "three-legged" retirement.

    Employers would be smart to at least offer something even if it is smaller if all the reporting on how woefully unprepared the nation's work force is for retirement is true.

  • Report this Comment On March 31, 2013, at 6:50 AM, Mathman6577 wrote:

    I'm lucky I'll get a pension when I retire.

  • Report this Comment On April 02, 2013, at 12:52 PM, FelixCaliferous wrote:

    Defined contribution means that your future is your own responsibility. Long live TMF! Save, read, and invest well, fellow fools. Good luck to all.

  • Report this Comment On April 02, 2013, at 1:28 PM, AmcnFndrs wrote:

    What is a Pension? I am a Gen Xer and I never heard of companies left offering that. Good thing I started my 401K at 22.

    This is America! We need to get over the notion that the governent and corporations will take care of us. Not sure why or how that mindset took hold of us.

    My grandparents imigrated here so that they could escape this and tough me well - there will be no pensions when you enter the workforce and on balance, it's not a good deal to hand over your life for a % of that when you are old and don't feel well. Where is the freedom in that.

  • Report this Comment On April 02, 2013, at 2:32 PM, famiglia112 wrote:

    "This is America! We need to get over the notion that the governent and corporations will take care of us. Not sure why or how that mindset took hold of us." Well put, canary08.

    As always, what are the incentives? Pensions are the incentive to retire prematurely. Obviously the workforce wants pensions- who doesn't want to retire early? I know people who retired in their 50s with a pension and are now in their 80s. There is zero chance that they contributed enough in 30 years of work to account for receiving 60+ years worth of pay. Same goes for social security...

    On the other hand, 401ks with employer match provide the incentive to work longer to get more matching contributions.

  • Report this Comment On April 02, 2013, at 10:38 PM, caffeinefree51 wrote:

    First of all canary08, either you mistyped, or your education didn't do well for you. It's my grandparents TAUGHT me well, or maybe they should have TAUGHT you to proofread. For you youngsters that seem to know it all, maybe somebody that retires at the age of 50, has done smart with their money, worked hard, saved, and invested. Also don't have to live the high life with all the "must have gizmos".

    Most of you kids today are all about me, and expect mommy and daddy to give you everything. The younger crowd today has a poor work ethic.

    So, if your just starting out, I applaud you to learn about investments, and compounding interest. I am late to the game (52), and although I started investing in my 401 k, around 30 years of age...I know it will be a struggle to retire real comfortable. I am way ahead of most of my counterparts, that like this article states, many have just started to put some money away.

    I have a pension with my company, but, after studying my retirement, my 401 k, is the breadwinner, followed by social security, then my pension. Yes, us boomers are entitled to SS, as the government has been taking $ out of every paycheck I ever earned. I used to own FORD, but dumped it after learning what they have paid their CEO. For the past 2 years, he has raked in close to $50 million a year, and here their pension is a "underfunded"???? I will never invest in a CEO's outrageous pay package, over the actual workers. That is a huge problem in American business these days. Take care of the top, but stick it to the actual workers. If that doesn't change, we are destined for 3rd world.

  • Report this Comment On April 03, 2013, at 1:59 AM, kyleleeh wrote:

    @caffinefree51

    How do call out someone for not proofreading in one sentence, and in the next sentence say something as grammatically incorrect as "has done smart with their money"?

  • Report this Comment On April 04, 2013, at 4:14 PM, AmcnFndrs wrote:

    @caffinefree51

    Please be respectful with your comments. Review our Fool's Rules.

  • Report this Comment On April 04, 2013, at 4:34 PM, Costanzawallet wrote:

    Goodbye unions, goodbye pensions. Used to be that a single income family was able to live well and send their kids to college. Now most households need two incomes to get by. Now everyone is on their own. that's American progress.

  • Report this Comment On April 04, 2013, at 6:18 PM, famiglia112 wrote:

    @caffeinefree51

    "Yes, us boomers are entitled to SS, as the government has been taking $ out of every paycheck I ever earned."

    What irks me about this mentality, and I've heard it from many others as well, is this: no one argues whether or not people have paid into social security. What I question is whether or not they have paid in less than they intend to receive. A system based on everyone receiving more than they input (on a time-adjusted basis) just doesn't make any sense.

    "For you youngsters that seem to know it all, maybe somebody that retires at the age of 50, has done smart with their money, worked hard, saved, and invested. Also don't have to live the high life with all the "must have gizmos"."

    This is completely irrelevant. Your lifestyle certainly affects your own retirement planning, quality of life, and long-term financial well-being, etc, but it in no way affects the ones writing those pension or social security checks.

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