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Retirement Ripoff Sequel 2

image: retirement

‘It’s really over’: Corporate pensions head for extinction as nature of retirement plans changes

By Nathan Bomey
December 10, 2019
USA Today

The practice of companies sending monthly retirement checks to their former workers is headed for extinction, and remaining pension funds are in tough financial shape.

Nearly two-thirds of pension funds are considering dropping guaranteed benefits to new workers within the next five years, according to a human resources consulting firm that studied the matter.

Despite gains in the stock market this year, U.S. pension plans are near their worst financial state in two years, according to the new report by Mercer, which casts a spotlight on the escalating cost of past promises to employees.

Most U.S. companies no longer offer defined-benefit pensions, which typically provided guaranteed monthly payments to workers when they retired. But pension funds that still operate must gain in value to ensure they have enough to meet their obligations.

By late 2019, the average pension fund had 85% of the funds necessary to meet its obligations over time due largely to low interest rates, according to Mercer’s 2020 Defined Benefit Outlook.

The firm also reported that 63% of companies with defined-benefit pensions “are considering termination” of the plan within half a decade. That would mean the pensions would be closed off to future participants.

The report comes as corporate pensions continue to disappear.

General Electric announced in October that it would offer lump-sum pension buyouts to about 100,000 former U.S. employees who have not yet begun receiving their pensions.

The company, which has been facing pressure to bolster its finances, also announced plans to freeze pension benefits for about 20,700 salaried pensioners at current levels.

“In the bigger picture, GE is just going the way that most of the private sector in the United States has gone,” Alicia Munnell, director of the Center for Retirement Research at Boston College, said in a recent interview. “Its really over in the private sector. The question is, just when does the last plan close down?”

The number of pension plans offering defined benefits - which means the payouts are guaranteed plummeted by about 73% from 1986 to 2016, according to the Department of Labor’s Employee Benefits Security Administration.

That’s due to a mix of reasons, including risk, costs, declining union power and the rise of 401(k)-style defined-contribution plans, which require workers to kick in their own funds for retirement investments, often with a company match.

SOURCE

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image: 401k bomb

Opinion: Recent surveys show sharp decline in retirement wealth for typical household

By Alicia H. Munnell
MarketWatch
January 2, 2020

In preparation for a recent presentation, I asked for data to documentthe increasing dependence on 401(k)s as opposed to traditional defined-benefit plans. One of the figures included total retirement wealth for households in the middle of the wealth distribution for five different cohorts.

I was stunned to see that retirement wealth, measured in 2016 dollars, had declined. That is, the wealth holdings for the late boomers (age 51 to 57) were actually lower than the wealth holdings for the mid boomers (age 57 to 63) at the same age .

Retirement wealth, which comes from the Health and Retirement Study (HRS), includes:

1) Social Security;

2) employer-sponsored retirement plans (including defined-benefit plans);

3) non-defined-contribution financial wealth; and

4) housing wealth. Ages 51 to 56 were chosen because that is when the respondents in each new cohort enter the HRS, allowing the st

Even though the HRS is the gold standard for wealth and income data, the decline was so unexpected that I asked my colleague, Anqi Chen, to look at data from the Federal Reserves 2016 Survey of Consumer Finances. While the only data readily available were holdings in defined-contribution plans, the pattern was similar to that found in the HRS. The wealth holdings of the late boomers were below those of both the mid and early boomers, who are age 63 to 69.

This pattern of decline is distressing. It suggests that fewer households in the middle of the wealth distribution have 401(k) assets. Given the decline in Social Security replacement rates, an increasing number of households will be falling short.

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Posted by Elvis on 01/03/20 •
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