As pension plans at private companies become continuously rarer and the condition of existing corporate pension plans continues to worsen, the nature of retirement in America is being forced to go through a period of change. This is according to a story in USA Today by business trends reporter Nathan Bomey, and a report by human resources consulting firm Mercer.
Nearly two-thirds of pension funds are considering dropping guaranteed benefits to new hires within the next five years, according to Mercer’s 2020 Defined Benefit Outlook.
“Despite gains in the stock market this year, U.S. pension plans are near their worst financial state in two years, according to the new report by Mercer, which casts a spotlight on the escalating cost of past promises to employees,” Bomey writes. “Most U.S. companies no longer offer defined-benefit pensions, which typically provided guaranteed monthly payments to workers when they retired. But pension funds that still operate must gain in value to ensure they have enough to meet their obligations.”
By late 2019, the average American corporate pension fund had 85% of the funds that would be required in order to meet its obligations over time, while 63% of companies with defined-benefit pensions “are considering termination” of the plan within half a decade, the report says. Termination of the plan would cut off new hires from becoming recipients, Bomey writes.
Corporate pensions continue to become rarer as time goes on, with General Electric (GE) announcing in October that it would intend to offer lump-sum pension buyouts to approximately 100,000 former U.S. employees who have yet to receive any pension benefits. GE also plans to freeze benefits for 20,700 salaried pensioners at current levels, without making additional cost-of-living adjustments in the future.
“In the bigger picture, GE is just going the way that most of the private sector in the United States has gone,” said Alicia Munnell, director of the Center for Retirement Research at Boston College, in an interview with USA Today. “It’s really over in the private sector. The question is, just when does the last plan close down?”
The number of pension plans that offer guaranteed payouts has also diminished drastically, declining by an estimated 73% between 1986 and 2016, according to statistics from the U.S. Department of Labor.
Read the story at USA Today.