And Then There were 61!

I wish that my reference to the # 61 had to do with Roger Maris breaking Babe Ruth’s home run record, but alas it has to do with the fact that there are ONLY 61 companies in the S&P 500 with a defined benefit plan still accepting new employees. What was once an important tool for the recruiting and retention of employees, the defined benefit pension is rapidly following the same path once taken by the dinosaur.

There are many reasons why DB plans are fast approaching extinction, but you can lay the primary blame on both legislation and collapsing interest rates. Tax cuts in 1986 and again in 2017 removed much of the incentive to offer this important retirement vehicle. In addition, escalating PBGC premiums are a tremendous financial burden, especially for those plans with funded ratios below 85%. Lastly, Fed policy decisions that have driven US interest rates to nearly 0% have obviously contributed to a dramatic rise in the present value of those future benefit payments.

Who loses? Obviously, the American worker is the loser in this development. As a result of the demise of DB plans, we are left with an inferior scheme in DC plans that forces untrained individuals to fund, manage, and then disburse this “benefit”. Many Americans continue to struggle with the fallout from two vicious recessions and the Covid-19 crisis that have produced a tremendous loss of employment opportunities and wealth for a significant portion of our working population.

Call me naive, but I believe that companies trying to recruit the best talent, while also trying to hold onto their most important employees would be best served by offering a defined benefit plan that helps them manage their workforce through time. Are there potential issues? Certainly! Are they insurmountable? Hardly! I am very concerned about the impact of our failing retirement system on our broader economy, especially as our population ages. It is time for the Federal government to take the lead in rethinking many of the issues that have gotten us to this point before it is much too late.

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