Why Young Workers Want a Good Old-Fashioned Pension

Why Young Workers Want a Good Old-Fashioned PensionThe conventional wisdom is that young people today are inured to the idea that they will change jobs repeatedly over their careers, and that because of that, they don't really think much about pensions. But it turns out that the conventional wisdom is wrong.

According to a survey by professional services firm Towers Watson (TW), the percentage of young workers who cited their pension plan as a reason for staying with their current employer has jumped from 28% two years ago to 43% now. Those who like their company's 401(k) plans, in contrast, declined from 19% to 17%.

Alan Glickstein, a Dallas-based senior retirement consultant at Towers Watson, said he was surprised that so many young people cited their defined-benefit pension plan as a main reason for sticking with a job.

"What they want is security," Glickstein says. "They saw people who were ready to retire after working a large number of years suddenly face a big setback because of the financial downturn. Whether it hit them directly or indirectly, it created fear, and the reaction is 'I don't want that.'"

Defining Defined Benefits

A defined-benefit plan is a traditional pension that pays out a predictable, steady benefit at at the end of a working life.
By contrast, a defined-contribution plan is usually something like a 401(k), in which the worker contributes a portion of his income and the employer may offer a matching contribution. A pension is funded by the company, while a 401(k), as many workers have learned to their horror in recent years, rises and falls with the stock market.

In the last decade there has been a major shift away from defined-benefit plans toward defined contribution plans at major U.S. companies.

Glickstein says that of the Fortune 1,000 companies his firm tracks, 586 have some form of defined-benefit plan. Of those, 208 have frozen parts or all of the benefits, meaning either that no new benefits are accruing or that new employees can't qualify for the benefits.

Could an Economic Rebound Revive Pension Plans?

Glickstein says the problem for many workers is that the defined contribution plans are a poor substitute for a pension. According to the Center for Economic and Policy Research in Washington, the average balance in 401(k) retirement plans is only $60,000, far less than is necessary to survive a lengthy retirement.

"We see statistics all the time that suggest that relying on a 401(k) plan as a primary source of retirement income is not going to do it," Glickstein says. "There is a tremendous amount of effort under way on the part of plan sponsors who have moved in that direction to treat the 401(k) plan more like a primary retirement vehicle."

Public sector employees tend to have more access to traditional pensions than private sector workers, but that too is changing. Recent changes in states like Wisconsin have been designed to reduce public sector pension benefits.

Glickstein believes that if the job market improves with the economic rebound, some companies may be forced to resume offering traditional pension plans again, or their employees will flee to firms that do. "The fact that younger employees are now saying they value security and it would matter to them if they had a pension plan, could start influencing employer behavior about what they offer,'" he says.

"If you have a whole bunch of workers who were ready to retire two years ago, but can't afford to because their 401(k)s took a dive, you've got some really big issues in managing your company," he says. "Your ability to manage your workforce and cost effectively move them out of the organization when they are ready to is a really big issue."

Here are the top 10 U.S. industries that offer defined-benefit pensions:
  1. Aerospace and defense 100%
  2. Utilities 93.7%
  3. Food and beverage 90.6%
  4. Manufacturing 82.6%
  5. Automobile and transportation equipment 81%
  6. Natural resources 75%
  7. Energy 64.7%%
  8. Wholesale 64.1%
  9. Insurance 62.5%
  10. Financial services 60.6%

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Where is this interesting, informative writer. I have been following his writing and his interesting perspective! Hope we have more of his journalism and less of Walletpop!

May 02 2011 at 10:45 PM Report abuse rate up rate down Reply

Young people want an old fashion Pension==WOW Politicians should take them upon that, seeing
way back when SS was less than $200.00 a month. Use the rest to pay for all of OBama`s
increase of the National Debt.

April 29 2011 at 4:54 PM Report abuse rate up rate down Reply

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April 28 2011 at 10:34 AM Report abuse rate up rate down Reply


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April 28 2011 at 11:12 AM Report abuse rate up rate down Reply

One of the big issues with defined benefit plans is the typically long vesting period. If a worker is not vested for 5 or 10 years, and if that worker gets laid off or keeps switching jobs before they are vested they could end up with no pension at all when they retire.

Now if a defined benefit plan as well as an IRA with much higher annual contribution limts say up to $20,000 were allowed then that would solve part of the issue of workers changing jobs or being laid off before they were vested in the defined benefit program. As long as they contirbuted to the IRA and did not lose the money in the stock market or wherever they invested it.

But how to you solve the problem of people who are unwilling to save anything. DO you ever notice the types of cars people drive around. It amazes me tht peole making little to no money drive around cares that cost as much s their yearly income.

Another solution is to have immediate vesting in the defined benefit program and make it portable.

But keep in mind, if a company goes to a defined benefit pension plan, it will negatively impact employees current salaries. .

Then you have the issues of non funded and underfunded pension plans and companies buying other companies to raid an over funded pension plan - all the issues we had back in the 80's. So those things would have to be addressed as well.

But I am in favor of ANYTHING that lets me save money tax free.

But none of these things will happen becasue they make too much sense.

But as long as the middle class spends as much of it annual income as it does on housing and transportation and is fored to spend even more money on education so their children can avoid the public school system the pension problem is never going to get fixed.

April 28 2011 at 4:58 AM Report abuse rate up rate down Reply
1 reply to textile100's comment

Employees tend to forget all about their shareholders , even worse, employees are shareholders themselves . So corporations end up making contributions to pension plans and irking sharehlders all the same!! See my point? Look at General Motors!! After decades of asset sales to help shore up the huge UAW pension and benefits, GM still went bankrupted. Later, GM get billions in bailout from the govenrment but still need an IPO to keep contributing to pension plans . What is wrong with Social Security and Medicare?? Employees can never be satisfied so shareholders as well as employees themselves are shipping jobs overseas in hopes to save their jobs.. vicous cycle!!

April 28 2011 at 11:17 AM Report abuse rate up rate down Reply

A pension plan can be taken away from anyone as easily as filing bankruptcy. I had been retired for 10 years when my previous employer filed for bankruptcy and the court allowed the pension assets to be turned over to the PBGC. The PBCC now pays me exactly one half of the monthly benefit I retired with. A 401k is in the name of the beneficiary and belongs to them regardless of circumstances.

April 27 2011 at 8:13 PM Report abuse rate up rate down Reply
1 reply to kcjamestus's comment

Usually corporations buy employees out with cash lump sums in exchange of surrending pensions.. Look at GM .. There will be more corporations following later in the next down cycle..

April 28 2011 at 11:18 AM Report abuse rate up rate down Reply

Shame on them! As Ben Franklin said, "A man who prefers security over liberty deserves neither." I wouldn't give up my 401k for a pension ever! I trust myself more than any portfolio manager to make wise decisions about what is appropriate given my specific needs for my retirement. I trust the market more than government and I trust me more than them. If you think differently then I am sorry for you!

April 27 2011 at 4:34 PM Report abuse rate up rate down Reply
1 reply to John/Kristine's comment

sure, some of you can make wise decisons usually at expenses of others... Wall Stret simply take money from others and give to you for a commission!

April 28 2011 at 11:20 AM Report abuse rate up rate down Reply

To retire well, you need a pension that is dependable plus you need your own personal savings to buy an annuity or invest while retired, and lastly, you need your Social Security. These together make a three legged stool that you can rely on.

April 26 2011 at 9:31 PM Report abuse +5 rate up rate down Reply
The Stambaughs

I could not agree more with the superiority of defined-benefit over defined-contribution pension plans. The reason businesses have tried to move to defined-contribution is because it is less expensive for them to have defined-contribution plans. The defined-benefit plan is more fair to the employee, whether white-collar or blue-collar. The employee works each day secure in the knowledge that his/her pension plan will be there at his retirement date to support him in his old age.

April 26 2011 at 6:17 PM Report abuse +4 rate up rate down Reply