For nearly six years, KCS has been banging the drum regarding a retirement crisis unfolding in the U.S., and the primary reason is the demise of the defined benefit plan. We have been railing against traditional asset consultants and actuaries given their unwavering focus on the return on asset assumption (ROA), as if it were the “Holy Grail”.
Our drumming has regrettably fallen on deaf ears! As a result, DB plans in both the public and private sector continue to be frozen and/or terminated. It is currently estimated that only about 14% of the private sector is covered by a DB plan, and many of those participants are in frozen plans. Coverage was once closer to 50% according to the DOL, while at the same time multi-employer plans are seeking relief by reducing benefits to current and future retirees. We find this practice particularly shameful.
KCS has been trying to get plan sponsors to focus more attention on the promise that they’ve made to their participants through the adoption of Ryan ALM’s Custom Liability Index, which would provide greater transparency on a much more frequent basis than the once per year actuarial report. As a reminder, the only reason that these DB plans exist is to meet the promise that was originally made.
Finally, it appears that real change may be coming. I am happy to report that critically important legislation has been drafted, which is currently being presented to members of Congress that might just “save” the pensions for multi-employer participants, without the need to dramatically slash pension benefits. Ryan ALM and KCS (thanks, Ron, for getting us involved) are working together with others to help save these plans. I am not currently at liberty to share more details but will be happy to do so as progress is made in Washington.
It is one thing to bang the drum (many others believe that a crisis is unfolding), but it is an entirely different kettle of fish to actually get involved in creating a unique solution. Both Ron and I are confident that the Ryan ALM implementation is the way forward for Pension America. We need DB pensions in this country because the social and economic consequences of our failure to preserve them will be devastating. However, following the same 50-year-old strategy has proven a devastating failure! Change is needed now!