Based on a recent report from The Pension Benefit Guarantee Corp, the federal agency that insurers private sector pension plans, the number of employers that offer pension has declined from 112,208 in 1995 to only 25,600 in 2011. That number is probably a lot less today in 2013.
One major culprit is the low rate that consumers are enjoying!
Why the low interest rate is hurting employees getting pension?
Here are the reasons:
Pension is reported as a liability on the employer's books, the lower the interest rate, the higher the pension liability and the more contribution the companies are required to set aside more money to meet future obligations, talking about the perfect storm, for employers!
No wonder GM paid Prudential $25 billion to assume its pension risks, and Verizon transferred $7.5 billion pension obligation to Prudential as well.
When employers found they cannot take such increasing expense anymore, the only thing they can do is to stop the pension plan!
When a pension plan is stopped, employers typically offer a match, say 3% to an employee's 401(k) contribution, but such contribution, which lasts through the years of an employee's career with the employer and stops when the employee stops working, has no way to measure up with the potential benefits offered by a pension plan which covers the entire retirement life or an employee.
For example, an employee with a $40K salary who receives 3% company match, and contribute 7% of her own money to the 401(k) plan each year will end up with roughly a third less in retirement fund after 25 years than she would have with the pension plan.
Of course, employees themselves should take some of the blame as well - when searching an employment opportunity, how many people ask if the employer offers pension? Everyone just cares about now - how much salary and vacation time I can get today instead of how much future pension income I can get 30 years later.
The unfortunate human nature!
One major culprit is the low rate that consumers are enjoying!
Why the low interest rate is hurting employees getting pension?
Here are the reasons:
Pension is reported as a liability on the employer's books, the lower the interest rate, the higher the pension liability and the more contribution the companies are required to set aside more money to meet future obligations, talking about the perfect storm, for employers!
No wonder GM paid Prudential $25 billion to assume its pension risks, and Verizon transferred $7.5 billion pension obligation to Prudential as well.
When employers found they cannot take such increasing expense anymore, the only thing they can do is to stop the pension plan!
When a pension plan is stopped, employers typically offer a match, say 3% to an employee's 401(k) contribution, but such contribution, which lasts through the years of an employee's career with the employer and stops when the employee stops working, has no way to measure up with the potential benefits offered by a pension plan which covers the entire retirement life or an employee.
For example, an employee with a $40K salary who receives 3% company match, and contribute 7% of her own money to the 401(k) plan each year will end up with roughly a third less in retirement fund after 25 years than she would have with the pension plan.
Of course, employees themselves should take some of the blame as well - when searching an employment opportunity, how many people ask if the employer offers pension? Everyone just cares about now - how much salary and vacation time I can get today instead of how much future pension income I can get 30 years later.
The unfortunate human nature!
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