Once upon a time, individuals worked for just one or two employers during their lifetimes.
When they quit, long-term employees were rewarded
with send-off dinners, gifts -- like the traditional gold
watch -- and, most valuable of all, a pension plan to help them
settle into carefree retirements.
Today, many of us hopscotch from job to job. As for
those traditional pension plans that employers funded and invested
on behalf of their workers? They're becoming as rare as a wind-up
pocket watch.
To be sure, the clock's been running out for pension
plans over the past few decades, with fewer employers offering them
to workers. In 1984, 24.2 million individuals were enrolled in a
traditional pension. Today, that number has fallen to 11 million,
according to the Employee Benefit Research Institute, or EBRI.
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| Pensions out; 401(k)s
in |
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Effect
of new law
But the demise of the pension may come faster than expected, thanks to the Pension Protection Act.
Passed in 2006, the law was designed to safeguard pensions from budget shortfalls by requiring companies to guarantee that plans were nearly or completely funded. Instead, new rules have triggered a "significant acceleration in the pace of plan freezes," according to findings released by EBRI and Mercer Human Resources Consulting.
Bruce Nordstrom of Mercer says employers are spooked
by the law's potentially huge costs and investment uncertainty.
"With a traditional pension plan, the risk of investing falls
on the plan sponsor," says Nordstrom, referring to the employer.
"If a company gets superior returns, they benefit. But if the
market does poorly, they may have to contribute more to the pension
plan in any given year to comply with the new law. That kind of
risk is difficult to fit into a financial system like ours."
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