CBS: Top Retirement Stories of 2010

NewImage.jpgCBS MoneyWatch put together a good list of the top stories of 2010 related to retirement.

“It’s that time of year to reflect on the significant news events that occurred during 2010 and how they affected us, so let’s take a look back and see what we can learn from them about retirement planning,” writes Steve Vernon.

One of the stories which reverse mortgage lenders shouldn’t see as any big surprise is the challenge of generating adequate income from retirement savings.

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In February, the U.S. Department of Labor issued a request for information to pension industry specialists and the public at large about the challenge of using IRAs, 401ks, and retirement savings to generate reliable lifetime retirement income. The DOL received 780 public comments in response and held two days of testimony in September.

Not much consensus came from the comments and testimony other than that this is a significant challenge that deserves more debate and discussion. Meanwhile, if you’re approaching retirement and are planning to use your retirement savings to generate reliable lifetime retirement income, the hard truth is, you’re on your own when it comes to figuring out the best approach for you. The good news is, there’s plenty of great information out there from unbiased sources who aren’t trying to sell you insurance or investments.

The Top 5 Retirement News Stories of 2010

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  • Ever since the 1970s employers have looked for ways to obtain release from their defined benefit plans and their financial obligations. There were five issues which arose in the 80s to help employers in this regard.

    One was the rise in Silicon Valley and also in dot coms. Many of these employers brought actual and potential wealth to employees in exchange for decreased salaries. They promised participation in the future and increased value of the equity interests of the employer. Many young employees choose this route some for the better but many for the worse.

    We also saw the beginnings of the reduction in the influence of the labor movement on employee social and wefare related issues. It was the arguments of this movement which led to the proliferation of defined benefit retirement plans in the 50s and 60s. Traditional defined benefit plans were a model to the answer of the questions raised by organized labor about the social responsibility of employers toward the welfare of their workforces in retirement.

    Despite his labor roots, President Reagan achieved something no other President had done. He broke up a union, PATCO, and with it he brought in an era of de-emphasis on the protection of employee retirement benefits. Many employers successfully pressed the IRS and the Department of Labor to allow defined benefit plans to be amended (or created) to be more in line with defined contribution plans than old style defined benefit plans.

    Employees began placing greater value on increased current compensation than retirement benefits. At my own firm our unionized clerical workers voted out their union so that they could negotiate their benefits into current compensation despite our open and expressed concern about such a move. Many are entering retirement years with far fewer retirement savings than they believed they could save and earn in defined contribution plans.

    Finally, many employees were excited by the large increase in retirement plan assets due to inordinate market gains. When they found out that employers of traditional defined benefit plans were not required to share those gains with them through increased benefits, many of these employees pressed for defined contribution plans to provide what they believed would be more retirement income in the long run. Employers gladly instituted profit sharing and 401(k) plans and reduced defined benefit plan obligations accordingly. Many matched some portion of 401(k) employee contributions. As plan assets took the brunt of investment downturns, many employers were happy with the changes imposed on them by their employees and many employees became disillusioned with defined contribution plans.

    There are strong signs that the labor movement may resurge over the next decade. If that is true perhaps we will see the reemergence of more traditional defined benefit plans in the private sector. Unfortunately that will not benefit most of those who have been in the working force during all of the last three decades. Social responsibility of employers for employee retirement is a lost or passé thought in most of today’s business schools.

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