![]() ![]() Managing pension risk is difficult, and because the liabilities are so far into the future, there are always incentives to underfund. Participation only increased as corporations moved to cheaper defined-contribution plans. Only about a third of workers were active participants in a pension in the 1970s. That helps explain why, even at their peak, not that many workers had defined-benefit pensions. But just because these risks were on an employer’s balance sheet doesn’t mean employees and retirees were protected from them.Īnd managing these risks is extremely expensive. The idea - that your employer will keep paying your salary after you retire, and bear all the investment and longevity risk - sounds great. Less well understood is that defined-benefit plans were never that great for workers, either. Freezing the pensions for new hires in the 2000s was a big part of the reform that enabled them to stay competitive with foreign automakers. It’s a commonly held view that defined-benefit plans contributed to the decline of US automakers. There are good reasons that defined-benefit plans are increasingly rare, and trying to bring them back makes about as much sense as trying to revive the US economy of the 1960s. That would be a mistake - both for the auto industry and its workers. Shawn Fain, the president of the United Auto Workers union, wants to bring back the old-fashioned pension. ![]()
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