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Welcome to HR 101. Class is now in session. Today’s discussion will be about the history of the pension and why it went the way of the dodo in corporate America.
The history. In 1875, the American Express Company offered its employees the first private pension plan established in the US. Early pension plans were defined benefit plans that paid workers a specific sum each month upon their retirement, and was fully funded by the employer, according to the Pension Benefit Guaranty Corporation (PBGC). But it would be nearly 100 years until the government established protections for the benefit.
In 1963, when Studebaker was going out of business, the automaker decided to terminate its pension plan, leaving more than 4,000 workers at its South Bend, Indiana, plant without retirement income. Four years later, New York Senator Jacob Javits introduced legislation to protect pensions, and in 1974, Congress passed the Employee Retirement Income Security Act, which was signed into law that same year by President Ford, according to PBGC.
Fast-forward. In the 1980s, about 60% of American workers had access to a pension plan, according to Motley Fool. As of 2022, that figure had dropped to 14%.
So, why have so many employers ditched the pension plan? The answer may be simple: A 401(k) or other defined contribution plan is an easier, safer benefit for employers to offer.
“By giving a matching contribution, an employer can help fund their employees’ retirement without playing in the market,” Motley Fool reported. “Meanwhile, the employee’s benefit increases or decreases with their investments, over which the employer has zero control or interest.”
Not totally gone. While the pension plan may not be as ubiquitous as it once was, some employers in industries including education, government, utilities, and law enforcement still offer it, according to US News and World Report.
But will the pension ever return to its former glory? No one can say for sure, but Chris Farrell, senior economics contributor at Marketplace, believes the benefit shouldn’t be counted out.
“The most compelling argument is this: How can employers attract and retain talent in a tight labor market?” he said to Marketplace. “Well, one way is offering employees something they highly value: a guaranteed monthly income in retirement.”