Angst in America, Part 4: Disappearing Pensions
“Companies are doing everything they can to get rid of pension plans, and they will succeed.” – Ben Stein
“Lady Madonna, children at your feet
Wonder how you manage to make ends meet
Who finds the money when you pay the rent?
Did you think that money was heaven sent?”
– “Lady Madonna,” The Beatles
There was once a time when many American workers had a simple formula for retirement: You stayed with a large business for many years, possibly your whole career. Then at a predetermined age you gratefully accepted a gold watch and a monthly check for the rest of your life. Off you went into the sunset.
That happy outcome was probably never as available as we think. Maybe it was relatively common for the first few decades after World War II. Many of my Baby Boomer peers think a secure retirement should be normal because it’s what we saw in our formative years. In the early 1980s, about 60% of companies had defined-benefit plans. Today it’s about 4% (source: money.CNN). But today defined-benefit plans have ceased to be normal in the larger scheme of things. We witnessed an aberration, a historical anomaly that grew out of particularly favorable circumstances.
Circumstances change. Such pensions are all but gone from US private-sector employers. They’re still common in government, particularly state and local governments; and they are increasingly problematic. They are another source of angst for retirees, government workers who want to retire someday, and the taxpayers and bond investors who finance those pensions. Today, in what will be the first of at least two and possibly more letters focusing on pensions, we’ll begin to examine that angst in more detail. The mounting problems of US and European pension systems are massive on a scale that is nearly incomprehensible.