For Mark Roberts’ Use:
Change is inevitable in all areas of life, and retirement is certainly no exception. Even the best plans can be subject to pitfalls, which is why it’s important to review your retirement plan regularly to be sure it continues to fit your needs. Changes in the financial industry as well as government policy are prompting a shift in the way retirement is planned in the United States. Staying informed about these changes is key to planning a successful retirement.
During the 20th century, employer-funded pension plans became popular. Many workers still rely on these plans when thinking about their retirements. However, because of the high cost of funding these plans, many employers are abandoning this benefit. Others have underfunded or at-risk plans, and some corporations have even defaulted. Pension plans are clearly in danger for many Americans, and may not be a reliable retirement plan much longer.
The federal government has responded to this problem by passing several laws to protect employees who have corporate pensions, but it’s possible that these laws are now back-firing. The laws require employers with defined-benefit plans to reach a 100 percent funding target, and these companies are required to pay insurance premiums to the Pension Benefit Guaranty Corporation. The PBBC, created by Congress in 1974, is designed to protect American workers against pension default. Since more companies have defaulted on their pension plans, these insurance premiums have been steadily increasing.
Due to these increased costs associated with pension plans, many companies are deciding this type of retirement plan is not worth the risk. Many companies with underfunded pension plans are simply eliminating them altogether. The result is that less companies are offering pension plans to new employees, and older employees can no longer count on their pensions to see them through their retirement years. When planning for retirement, it is important to keep these changes in mind, and to create a comprehensive plan that does not rely heavily on an expected employer-funded pension.