Posted on 01/09/2006 7:59:49 AM PST by SirLinksalot
The Rush to Shut Down Pensions
When a well-funded giant like IBM joins the move to end defined-benefit plans in favor of 401(k)s, even more companies are likely follow
What a difference a year makes. Back in December, 2004, when IBM (IBM ) announced its intention to close its traditional pension plan to new employees, offering them the 401(k) plan instead, the company made it clear it did not wish to become a poster child for the broader demise of these old-fashioned retirement plans. Pensions already had been a painful public-relations black eye for Big Blue, which had been battling employees for years over changes made to the pension in the 1990s. More bad press was not what anyone wanted.
But on Jan. 5, IBM thrust itself back into the headlines with its decision to go one step beyond its earlier move and "hard close" those old plans. That means not only new IBMers, but people who have been there for decades, would no longer be accruing guaranteed benefits. Instead, they would be part of a more generous 401(k), though any pension dollars already earned would still be theirs as well.
Coming on the heels of a similar move by telecom giant Verizon (VZ ), it seems to be one more tolling of the bell for the promised pensions of old.
(Excerpt) Read more at businessweek.com ...
They couldn't roll it into an IRA ?
I look forward to the day when everyone thinks of themselves as independent contractors instead of maintaining any loyalty to nameless, faceless corporate giants. I lived through that crap once before (in a very small way), and I'll never do it again.
What you are advocating is to let people die...people who were promised benefits from a company for years. I am sorry, but I disagree. I say cut the ceo salaries and make companies live up to their promises. They do not have the right to break their promises to employees and continue to prosper.
It was very smart of you to max out your 401k.
Also smart of you to live in NC where the cost of living has been half of what it is up in NY and Boston.
I don't know how anyone could rely solely on a defined benefits pension. A favorite trick of big companies is to get rid of people just before they are eligible for the next step in the pension plan. So the good news is: you don't have to worry about that any more!
Large companies used to be WAY more stable than they are now. People raised before the 80's chose their careers based on economic conditions that prevailed in post WWII America -- how could they do anything else? To those who invested half or three fourths of their work lives in one company only to be told that the company is reneging on its pension promises is a bitter pill to swallow.
It may be obvious NOW that a job with a large corporation is NOT a lifetime gig with a nice pension at the end of the rainbow. But it made perfect sense to assume a company would keep its pension promises until around 1990 -- and you had to be pretty sharp to pick up the trends even at that point.
It's tough enough to figure out the right thing to do based on the facts of the time. You shouldn't judge those who made job and economic decisions because they couldn't see what was coming twenty, thirty, or forty years in the future.
Have you considered why insurance premiums are high now ? Employees with a low premium and low co-pay over use the system and are referred to endless specialists and never have to pay for services directly. That is a recipe for waster and inefficiency. Imagine what would happen if we all had the same auto insurance rates ? HSA'a are a great step forward in controlling these costs and if people knew how much each visit to the doctor cost they would think twice before goingf. There would also be an incentive for people to stay healthier which is more of a long term solution: preventive health care. And for the catastrophic cases that you describe people can buy a high deductible low premium policy so where is the problem ? The closer the end user is to to the actuak payment the better a service will always be.
Those were the two choices the company gave us,roll over to the 401K or they would cut a check with taxes to be liable.
This is the new economic reality and cutting CEO salaries alone will not be enough money for the pensions to be paid. Would you rather have GM and IBM disappear as companies OR survive with 401 K's and at still have thousands of employees. That is really the choice before a lot of companies now.
See my post #25. One thing discouraging about this place is there is plenty of "blaming the victims". You did the best with the information available.
In 1980, the idea of IBM -- IBM!!! -- breaking its employment promises was untinkable.
I think IBM or GM should be forced to cut CEO salaries to the bone and be granted a temporatry reprieve from some of their obligations, but no they should eventually have to pay their employees promised pensions. They gave their word and people depended on this. Any company that wants to do this need to go into chapter 11 for restructuring and all current CEO's need to be fired (no sweet deals either).
I work for Northrop Grumman (a defense contractor) and we have a pension plan plus a 401(k). I would much prefer they dump the pension and instead provide additional matching contributions to our 401(k) accounts.
My husband works for GM. We pay a 20.00 deductible for office visits and prescriptions. I have three kids. I do not go to the doctor for no reason nor do I demand specialists. Any request for a specialist is vetted by Blue Choice. You have to have permission to go to a specialist these days. The plans which you refer to have been history for almost ten years. We also, pay most of the premiums for our medical coverage. GM is self funded thus they choose to fund their own healthcare.
Your first look at what's going to happen with Social Security.
When an employee chooses to depend on a pension plan then they have relinquished control over their financial future and are no longer in control over their ship. When these penion plans were put in place, employees lived 2-5 years beyond retirement, now they live 20-30 years in retirement so the plans are unsustainable. It is the consequense of not being in control of your financial future. I feel for the employees affected but this should be a wake up call to all others not to depend on a faceless corporation for your retirment. Someone will control your financial future, that someone should be you.
Great point which I have made on several threads. The stock market will go down when the boomers start pulling their money out in record numbers. So 401K's also will not be worth as much as most people expect. The 401 K is based on the premise that you will be in a lower tax brackte when you retire after working 45 years. We have been brainwashed into believing that you should expect to make less money after working 45 years because you will need less money at 66 than you do at 65. Where did that lie come from ?
"A company-sponsored 401(k) plan in which each employee owns and manages his/her account is far more reliable than a company-paid pension plan that could disappear at a moment's notice."
This is the key. The one thing I have learned in 30 years of work in both the private and public sector is that you cannot trust anyone with your money.
I would much rather have a 401K plan that I own and manage than some thing the government or company can screw with after retirement.
My Father's company, DuPont, has been seriously screwing with their promised rettirement health plan for years. The military promised FREE health care for life for decades and then decided that the promise was not a promise and free meant retiree's pay.
I have begun every job with the assumption that those hiring me could care less and will only provide the basics if it is not too inconvenient.
Heck, I have had greedy buggers run out of office toilet paper, not to mention coffee in the break room.
Prepare for yourself and figure at least one of your sources of retirement income will fail or be screwed with.
Also, people only started going for preventive care after health inurance made its debut. When I was a kid, you had to be at death's door in order to go to the doctor-believe me. My brother had a broken arm...horribly painful I am sure. My Mother iced it and took him to the ER some ten hours later. It may interest you to know that when managed care first appeared, it was supposed to reduce the cost of healthcare. what are we supposed to do at this point-go back to living like third world workers with no benefits and low wages? Americans would not stand for it. The government would respond and national healthcare would arrive as well as other forms of socialism. The companies that are trying to maximize their profits at their employee's expense will pay a far greater price because of their greed.
I like your way of thinking. Someone else managing my money whether it is the govt or a corporation is always a risky proposition and a 401 K plan is far better. If the market is going to crash I can move it around but in a pension plan I have no control over it. I took an early lump sum payment from my last employer's pension plan because I did not believe that the pension plan would be solvent when I retire. Rather pay the penalty and get something now than nothing later !
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