Recently, I was reading a Wall Street Journal theater review about a new show titled “I Need That.” It is currently on Broadway starring Danny DeVito:
“The national pastime—I refer not to baseball, but to the acquisition of too much stuff and the refusal to get rid of a single dog-eared book, worn pair of shoes, or old Playbill, as if life weren’t worth living without each—comes under sympathetic scrutiny in “I Need That,” a modest but likeable, sentiment-spritzed comedy by Theresa Rebeck … in a Roundabout Theatre Company production. … ”
Elsewhere in the WSJ, there was an article by Telis Demos, titled, “Bring Back Corporate Pension Plans.” He asserts that higher interest rates and a competitive labor market make the case to bring back a version of the classic retirement benefit—the defined benefit pension plan.
Telis asserts:
- “Forty years ago, 88% of Americans had retirement coverage from defined-benefit plans”
- “Only 11% of employees in private industry were participating in one as of March 2022”
- “Even daydreaming about old corporate pension plans might have seemed pointless for a long time”
- “But now that conversation can at least start again. After some years of strong market returns, plus a surge in interest rates.”
Who has kept (hoarded) their old DB pension plan? Well, not corporate America. After the Pension Protection Act of 2006, most froze their plans to new entrants, others terminated their plans. Amazing what happens if you must vest and fund the promises, eh?! Sure, some like IBM might revive their plan (long ago converted to a cash balance formula, then frozen in 2006) – perhaps to take advantage of its funded status. But multiemployer plans?! Those are still hoarded now that taxpayers have bailed them out. Keep in mind, most taxpayers don’t themselves have a pension.
He concludes:
- “Rising rates open up entirely new possibilities for those frozen plans, and even new plans.”
- “The return of the T. rex is science fiction. The corporate pension plan doesn’t have to be.”
Nope! We don’t need that!
Not sure Telis can read or add.
First, yes, 88% of workers with retirement plans were enrolled in defined benefit (DB) pensions in 1983. But that only amounted to 33-38% of all American workers.
Second, yes, according to the National Compensation Survey—Benefits, 11% of private sector workers participate in a defined benefit pension plan. If you look at Department of Labor Form 5500 data for 2020 (last year available), you’ll note that 31.9 million participate in DB pensions, but only 12 million are active, accruing a benefit. That’s 22% and 8% of the 142 million Americans in the labor force who were not public employees as of February 2020 (164.6 million less ~23 million federal, state, and local government employees).
Third, most of the workers who were enrolled in DB plans prior to 1987 would never vest. The 1983 rules and most DB plans included 10-year vesting. Since the median tenure of American workers has been LESS THAN FIVE YEARS for the past SEVEN DECADES (per Bureau of Labor Statistics studies), only a small percentage completed 10 years of service and vested—most workers forfeited whatever benefit they had accrued upon separation.
Fourth, this ignores the risk many participants faced in the past from deliberate underfunding of certain plans. Consider:
- President Jimmy Carter signed the Multiemployer Pension Plan Amendments Act of 1980 to shore up funding when organizations terminate participation,
- President George W. Bush signed the Pension Protection Act of 2006, prompting most single employer DBs to freeze accruals or terminate plans or close the DB to new hires, yet Congress decided against action for multiemployer pensions in favor of more “study.”
- President Joe Biden signed an $86 billion bailout of multiemployer plans included in the American Rescue Plan Act of 2021—which also failed to fix the problem/preclude future underfunding.
We don’t need that!
Bring back the DB?! Demos recommends employers:
- Ignore “mark to market” challenges and bring back DB plans for the next 30+ years of accruals because interest rates went up in the last TWO years. Like they would never decline again?
- Attract new hires with a DB promise in which many/most won’t vest. How many want to join a firm based on a promise of a modest monthly income commencing decades in the future long after separation?
- Retain existing workers who might otherwise prefer to work elsewhere?
Most workers aren’t all that interested in benefits that are Promised, Future and Contingent—based on a promise of continuing the plan, delivered long in the future, and contingent upon continued employment and maintaining the current formula and other plan provisions. We don’t need that!
Simply, we don’t need defined benefit pension plans in order to successfully prepare for retirement. And, we already have enough underfunded retirement promises and entitlements that are likely to be foisted onto taxpayers. [i]
We don’t need that!
SEE ALSO:
• IBM Replacing 401(k) Match with 5% ‘Retirement Benefit Account’ Contribution
[i] J. Towarnicky, Retirement in America – Individual Account Retirement Savings Plans ARE Good Enough! 7/4/18, Accessed 11/3/23 at: https://www.psca.org/news/blog/retirement-america-individual-account-retirement-savings-plans-are-good-enough See also: J. Towarnicky, DC Plans: Can Everyone Win? 11/19/17, Accessed 11/3/23 at: https://www.psca.org/news/blog/dc-plans-can-everyone-win See also: J. Towarnicky, Pension Promises Without Funding Are Mere Dreams, 8/25/19, Accessed 11/3/23 at: https://www.psca.org/news/blog/pension-promises-without-funding-are-mere-dreams-0 See also: J. Towarnicky, I’m Dreaming of a Well-Funded Pension, 12/5/18, Accessed 11/3/23 at: https://www.psca.org/news/blog/im-dreaming-awell-funded-pension See also: J. Towarnicky, Pension Promises Without Funding Are Mere Dreams, 11/11/18, Accessed 11/3/23 at: https://www.psca.org/news/blog/pension-promises-without-funding-are-mere-dreams See also: J. Towarnicky, House Senate Action Needed on Social Security, 10/23/17, Accessed 11/3/23 at: https://www.psca.org/news/blog/house-senate-action-needed-social-security
Jack Towarnicky provides independent benefits consulting and serves as a member of aequum, LLC and of counsel for Koehler Fitzgerald, LLC.