When Did ‘Pension’ Become a Bad Word?

The United States is the best country in the world, but unfortunately it isn’t perfect. Our economic system is falling short of what it’s purported to be doing: setting up a decent job for all who wants one.

To foster careers, we require an end to bad trade deals, improved regulation of this financial industry and fairer rules for unions to organize workers. We also really need to fix our pension system.

Pensions have become a dirty word lately, perhaps because less people have them. Some people do not even comprehend what pensions are. Pensions are fundamentally annuities for people who contribute to them, either by deferring some of their wages or paying directly into the fund. They are called “defined benefit plans” because pensions provide a specified monthly amount to recipients. Pension funds are managed by investment professionals who are supposed to know what they are doing.

Our country’s private pension system is gradually being dismantled. With 401(k) plans, companies have shifted responsibility for retirement planning to their employees. Many 401(k) plans have been ravaged by high hidden fees and market downturns. I am concerned that millions of baby boomers will soon retire and find their 401(k) plans are grossly underfunded.

Congress did not create 401(k) plans with the intention of replacing pensions. They were meant to supplement pensions and Social Security. While pensions aren’t perfect, you are generally happier having a pension than a 401(k).

There are many, many small business owners that want to do the proper thing by their employees and promise them a snug, secure retirement. Unfortunately, they don’t possess the expertise to manage a pension fund. The answer: multi-employer pension plans, which covers workers from more than one company.

About two thousand companies contribute to one multi-employer fund; 90% of them employ fewer than 50 people and the typical annual benefit is about $14,000.

In multi-employer plans, company contributions to the fund are collectively bargained. Multi-employer plans are not union run. They’re controlled by trustees chosen by both management and labor, and they’re managed by investment professionals.

Like some single-employer pensions, some multi-employer plans are in trouble. They suffered from the global financial crisis and structural changes within the economy that have forced many contributing employers out of business.

A few years ago, Congress approved new regulations that raised the total amount businesses must give to the plans. These new funding laws are threatening the survival of the many small companies. Unless Congress acts, some will have to divert cash towards the multi-employer plans instead of expanding their businesses. Other small businesses will lay off workers and many may shut down.