Monday, January 9, 2006

More on the Demise of Traditional Pension Plans Among Fortune 500 Companies

Verizon, Lockheed Martin, Motorola, and IBM, have all fozen, or about to freeze their traditional defined pension benefit plans, under which workers used to be a guaranteed fixed pension payments at their normal retirement age.

According to this New York Times story:

Even strong, stable companies with the means to operate a pension plan are facing longer worker lifespans, looming regulatory and accounting changes and, most important, heightened global competition. Some are deciding they either cannot, or will not, keep making the decades-long promises that a pension plan involves.

Companies now emphasize 401(k) plans, which leave workers responsible for ensuring that they have adequate funds for retirement and expose them to the vagaries of the financial markets.

Peter Capelli, a professor of management at the Wharton School of Business at the University of Pennsylvania . . . called the switch from a pension plan to a 401(k) program "the most visible manifestation of the shifting of risk onto employees." He added: "People just have to deal with a lot more risk in their lives, because all these things that used to be more or less assured - a job, health care, a pension - are now variable."

The shift from define benefits plans to define contribution plans have already been discussed in previous posts here and here.  The question remains whether there are any ways to salvage the defined benefit pension system, without companies becoming overwhelmed by burgeoning pension obligations and the uncompetitive posture such plans leaves companies in.  Previously, it appeared from recent statistics from the PBGC that at least large defined pension plans (more than 100 participants) were weathering the storm fairly well, but the increase freezing of traditional pension plans among larger companies noted above seems to signal the acceleration of the demise of the traditional plans among all sizes of companies.


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