Since KCS’s founding in August 2011, we have worked tirelessly to preserve defined benefit plans as the retirement vehicle of choice for both employees and employers. Now, more than ever, our effort is needed. With each passing day, week, month and year, it is becoming increasingly obvious that defined contribution plans are nothing more than glorified savings accounts, at best!
The Federal Reserve’s Household survey, released earlier this week, highlights the challenges facing or employees in trying to save and manage their retirements, as a significant portion of our labor force have accumulated nothing for retirement. As we’ve stated on numerous occasions, there will be profound social and economic consequences for the US if we can’t manage its workforce through a dignified retirement.
The US economy is still only muddling through 6+ years following the great financial crisis. Much of the “credit” for the muted recovery and lower demand for goods and services can be attributable to weak wage growth. Importantly, the modest growth in wages doesn’t just impact demand today, but it makes saving for tomorrow that much more challenging.
We need to secure our employee’s retirements through a monthly annuity structure that is best achieved through a DB plan or DB-like structure, such as Double DB. Unfortunately, the elimination of DB plans has been on an accelerated path, and according to the DOL, there are fewer than 25,000 active DB plans today (down from roughly 150,000 in ’86). We’ve seen estimates that the median DC account balance is <$15,000. An account balance of that size will hardly get one through a year, let alone a retirement.
Furthermore, we shouldn’t be vilifying those employees who are fortunate to be in DB plans, but we should explore opportunities to extend their reach for those that aren’t. Despite the fact that there are many plans that appear to be dramatically (and maybe unsustainably) underfunded, there are new approaches to the management of DB plans that can be implemented, which will set a plan on a glide path to financial wellness. We sincerely appreciate that funding volatility can create havoc for both corporate and public entities, but that funding volatility can be mitigated, too.
The last thing that we want to witness is the further erosion in the use of DB plans in favor of DC offerings. No one is going to win if that occurs. The impact on the employee is obvious, but has corporate America truly assessed the impact from a failed retirement system on the ability of US citizens to remain active members of the economy? KCS has the tools to stabilize and improve the funded status of your DB plans to truly make them viable offerings for the long-term. Let us be your advocate, especially if there is an attempt to freeze or terminate your plan at this time.