Pensions Vs. 401(k)’s: Why you should Care that Pensions are Going Extinct

[NNN0LHI]

http://20somethingfinance.com/pensions-vs-401ks-why-you-should-care-that-pensions-are-going-extinct/

Submitted by G.E. Miller on Thursday, 30 April 2009

This post is a tad bit longer than the typical post on this site, but in my opinion, it should be an eye opener. I have some strong opinions on this topic and I’m VERY curious to see what you all think as well.

Today’s Retirement Reality

Most twenty-somethings have never and (unfortunately) probably will never sniff the sweet security provided by a pension plan. So what are these mysterious things called pensions that many of our parents and grandparents lean on in their retirement? Why are they disappearing? And what are our chances of ever getting one? This is an essential issue for our generation, and I encourage you to read on and actively lobby your employer should you see fit. If you want change, it has to start with someone. Why not you?

What is a Pension?

A pension is basically another word for a retirement plan. There are two types of pensions.

1. Defined Contribution Plan

A defined contribution plan is a type of pension where an employee, employer, or both contribute funds to an employees retirement plan. 401(k)’s are defined contribution plans. These plans are dependent on the returns of the investments that are chosen within them.

2. Defined Benefit Plans

A defined benefit plan is what most of us commonly refer to as a ‘pension’. These plans offer guaranteed automatic payouts in retirement based on a formula that usually takes into account your salary and years of service. The longer you work and the more you make, the higher your automatic payouts. Most employers offered defined benefit plans at one point. Social Security is a type of defined benefit plan.

The History of the Pension

For generations, pensions were the retirement plan standard for just about every employer. This may be hard to believe, but it wasn’t until the early 1980’s that 401(k)’s even existed. Ironically, 401(k)’s were originally added to the IRS code as a way for companies to offer additional retirement benefits to high ranking executives, above and beyond their defined pensions. This didn’t last long.

Over time, most employers have made the shift from defined benefit pensions to 401(k)’s. 401(k)’s were sold as the fresh new thing, giving employees all of the power to choose their own investments. In reality, they were often times a low to modest cost savings over their defined benefit counterparts. The combination of the appeal to the American individualistic ambition and cost cutting possibilities were the perfect storm to sell 401(k)’s over their elder relative.

[stray cat]

1. Agreed but pensions are not secured if companies go bankrupt

you still may not have the savings in your pension you think you have

[NNN0LHI]

3. Whats this?

http://www.pbgc.gov/

[doc03]

10. Defined Benefit Pensions are secured by the PBGC, if a

company goes bankrupt. There are limits, some very lucrative pension plans benefits can be cut.
http://www.pbgc.gov/workers-retirees/benefits-information/content/page789.html

[ProgressiveProfessor]

14. Its marginal protection...ask airline pilots

Forced retirement at 60 and then the airline goes bust...

[doc03]

15. At 60 years old the maximum payment from the PBGC

is $2925 per month for a single life annuity and $2632.50 for joint survivor. That's not too shabby a pension I wish I got that kind of money. I guess if you are accustomed to making 6 figures it isn't.

[WinkyDink]

21. Ask Bethlehem Steel retirees about this company.

[Brickbat]

2. Compounding the problem is the fact that the PGBC is so corrupt and gutted it can hardly guarantee

what pensions are left anymore.

Also, under the Bush administration, the PBGC hiked its premiums so much that it encouraged solvent, strong, established companies to switch to 401(k)s, leaving nearly bankrupt companies to fund the PBGC. It also switched to stocks around that time.

[NNN0LHI]

5. Doesn't help when the worlds most profitable automaker dumps its pension obligations on the US govt

http://www.libertysflame.com/cgi-bin/readart.cgi?ArtNum=7075

Title: Toyota To Hand Off Pension Bill To U.S. ($131-million)
Source: DETROIT FREE PRESS
URL Source: http://www.freep.com/article/201003 ... o-hand-off-pension-bill-to-U.S
Published: Mar 18, 2010
Author: BY GREG GARDNER
Post Date: 2010-03-18 12:25:16 by Brian S
Keywords: None
Views: 31


Toyota is leaving a $131-million pension shortfall to the Pension Benefit Guaranty Corp. as it closes the New United Motor Manufacturing Inc. plant in Fremont, Calif., April 1, said Sergio Santos, president of UAW Local 2244.

But the PBGC, a federal corporation charged with protecting pension benefits of 44 million Americans, wants to discuss ways Toyota can reduce the gap. snip

Santos said NUMMI and Toyota imposed a "gag order that I believe violates our First Amendment rights," preventing workers from commenting on the plant closure.

NUMMI spokesman Lance Tomasu said the union voluntarily pledged not to denigrate NUMMI or Toyota as part of the shutdown agreement.

In recent days, Toyota sweetened the severance offer from $253 million to $281 million for the about 4,500 NUMMI workers, Santos said. Each hourly worker will receive a base severance of $21,175, plus supplements that vary based on years of service, the union president said.

On March 3, the PBGC said it would cover $126 million of a $131-million underfunding in the pension covering NUMMI's UAW workers. The agency said $5 million of supplemental benefits are not insured.

Harley Shaiken, a University of California Berkeley professor and labor relations expert, said the pension shortfall adds to Toyota's public relations challenges.

"For the world's most profitable automaker to walk away from a pension covering people who, in some cases, worked for more than a quarter of a century doesn't look good," Shaiken said. "Especially in the wake of Toyota's recent recalls."

[Brickbat]

6. Yes, the company that can do no wrong, and has everyone's best interests at heart,

continues to screw everybody.

[NNN0LHI]

7. Toyota is the Walmart of the auto industry

They have no shame.

Don

[Brickbat]

12. Well said.

[SocialistLez]

4. Trust me, I care. I'd much rather have a pension. NT

[SoCalDem]

11. I LOVE my piddly little pension.. It;s not much, but for 10 yrs worth of work

at my union job, I get that $366.05 check every 1st of the month, and if my husband dies before me, it goes up to $458.67...if I die first, HE gets $289.01 a month..

It's not enough to live on, but it's still welcome....combined with SS and his SS & we'll be comfortable without tapping into our 401-k or savings.

[TheKentuckian]

8. Many care but unfortunately many more didn't or believed that 401k's would augment

rather than replace defined benefits.

That thinking of "I'm gonna be rich" leads to destruction on the whole.

[customerserviceguy]

9. Your defined benefit plans only work

if the company offering them grows larger and larger every year, with an ever-expanding number of dollars coming in the door. When growth hits limits, then the scheme begins to fall apart.

When I make such suggestions that Social Security is going to face the same reality, I get accused of parroting right wing talking points.

[sinkingfeeling]

19. Not true. Works really well if the pension fund is isolated completely from the funding corporation.

I'm on a defined benefit pension plan and have been since 2001. My pension fund is fully funded with over $57 billion. You do realize that retirees die. Many of my best friends from my corporate days died before the age of 65, never touching SS and only using a small portion of the money set aside in the retirement fund.

[customerserviceguy]

20. Sounds like you retired from a really big corporation

Or government, which you don't have to be Rethuglican to recognize as a growing industry that should be able to meet it's pension obligations in some circumstances.

[damntexdem]

13. I know. When I have a choice, as with my current employer, I choose the defined-benefit pension.

Although that DOES put one at risk of not vesting (usually a 5- or 10-year period).

In my current job, I vested last year. In my prior job, I only had the defined-contribution plan.

[laughingliberal]

16. K & R nt

[Omaha Steve]

17. I Have a Defined Benefit Plan

I wish everybody had one. Mine will be opened in talks next year. There is a shortage in my fund.

K&R!

[dana_b]

18. We have

the DCP and he Defined benefit pension (I've worked for UC San Francisco for over 8 years) however they are opening up the talks to have us contribute more (I don't mind) and want to possibly have the new hires get less. I wish every one had what we do athough I don't think there's any guarantee that the pension will be there when I am old enough to retire. They seem to be getting more "corporate" in their ways and attitudes. sigh...