Fading Benefits

Today’s posting is a reflection on disappearing employee benefits.  


This week’s announcement that General Electric is freezing pensions for current workers is yet another ominous sign that retirement programs are disappearing from the employer’s career offering. This has become a trend in the last ten years. The trend actually began earlier as large employers filed for bankruptcy protection and walked away from their pension liabilities.


A federal pension guarantee program exists to cover those failed plans, but only a portion of the value is guaranteed. Most likely pensioners will find the program well below expected benefits under the original plan.


401k plans were originally created to motivate individuals to fund their own retirement dreams. This was supposed to be a marginal effort to improve standards of living during retirement funded by the employee’s own self-interest. However, another objective was in the design: attract people into the investment market and share a stake in America’s economy.


Many people did just that. investments soared, the kind that were left alone for long periods of time. this added bulk and stability to the investment market. A good thing but of questionable value given the wild swings of market values in recent years.


Another objective was not shared with the public. Employers were increasingly concerned with the large and growing pension liability carried on their books. They considered ways and means of reducing that liability, or at least controlling it toward lower levels. The 401k program was a handy means of doing that. The result: pension plans were slowly modified to cap payouts and cost of living adjustments.


A few years later and pension plans were being replaced with skeleton plans compared with the older programs. Corporate bankruptcies sealed the fate of many pensions by being completely erased from existence. The federal pension guarantee program picked up a modest portion of the slack. However, the American taxpayer paid for this one way or another.


Careers today are less and less focused on one employer. Loyalty to one long-time employer is disappearing as careerist follow opportunity wherever it takes them. Cycles of careers have shortened with technology shifts and global economic forces. Portability of benefits became a term in the early 2000’s. Today it is a feature of benefit plans.


To be clear, pensions will continue to exist and motivate employers to attract the best employees. However, it is in their interest to limit their forward liability and they will do so. That leaves employees on their own to manage their own benefit and security plans.


Social security, 401k plans, personal investments and savings will become the primary foundation for retirement security. Corporate and union pension plans will be important components for guaranteeing retiree standards of living.


I think it is in the interests of both employee and employer to be clear on their integrated interests. Promising a future benefit is a contractual duty to perform. If the intent is to be believed and valued, the employer will need to put up and show up. If they don’t wish to do this, then their attractiveness in the labor market will be zero and they will fail.


Pensions are a hidden value of employment. Most people don’t think about pensions until much later in their career. That’s a problem. There truly is no guarantee that employer pensions will continue to exist. Like group health benefits, many employers are shirking their once prized benefit programs and sticking it to their employees.


Along with favorable tax treatments of recent years, it appears employers are getting their wealth protected at the expense of the employee. That’s you and I, folks. All of us.


Just when will the lights go out in the Human Resources Benefits Office? And at what cost?


October 11, 2019