This month’s Fireside Chat was crafted by our partner, Dave Murray, the former plan sponsor for Conrail’s DB and DC plans. Dave has become a real expert in all things DC. Dave’s focus this month is on the 403(B) space, and specifically those plan’s dealing with non-profits. Many of our colleagues, friends and associates volunteer at non-profits, with many holding board or finance positions. With this great responsibility comes the need to stay on top of legislative changes. We hope that you find this piece educational.
Much has been written about the growing unemployment crisis for those under 30 in the US, with <50% of that cohort working a full-time job, but there is a secondary effect that hasn’t gotten much notice. With the demise of defined benefit plans as the primary source of retirement income, defined contribution plans are rapidly becoming the only retirement game in town. However, for DC plans to be effective, employees need to fund as much as they can, as early as they can, in order to build a nest egg that will accumulate the necessary assets for a 20-25 year retirement. With the younger workers not entering the workforce until they are in their late 20s, they are missing out on several years of contributions and compounding. Unfortunately, managing a DC plan has proven difficult enough for most of us. We certainly don’t need further impediments exacerbating an already tough situation.
Underfunded and underperforming pensions are damaging our huge population of baby boomers that are entering retirement. The bad news? It’s only the beginning.
“The temptation for governments to negotiate unrealistic benefits was even greater than in the private sphere. Elected officials knew that, by the time benefits came due, they would be out of office. Union officials knew it, too. Once benefits were agreed to, cities and states chose to skimp on funding. Politically, it was always preferable to build the extra school or staff the additional fire station than to squirrel away more pension money.”
“This is a pity because, when properly run, pensions remain the best form of retirement plan. They do away with many of the risks born by individuals alone, such as outliving one’s savings or retiring at the wrong time. And most people don’t have the expertise to manage portfolios.”
Our latest Fireside Chat discusses the complexities of retirement planning.
Read it here: Papa, Can You Hear Me?