Critics malign 401k plans; they favor the wealthy, they don’t provide guarantee income in retirement, they require employees to contribute, investment choices are poor, etc. pensions are much better.
I have a pension, it makes me financially secure. I wouldn’t trade it for anything. HOWEVER, the value of my pension is based on the fact I worked for the same employer for nearly fifty years.
Pensions deliver value based on earnings and a formula based on service with the employer. Generally, you add to your pension as the plan gives you a percentage of (average) earnings for years of service.
Now look at the statistics below from the BLS. What good is a pension when job tenure is measured in a few years, often insufficient to become vested in any benefit?
The median number of years that employees have worked for their current employer is currently 4.1 years, according to a News Release from the U.S. Bureau of Labor Statistics. However, this longevity varies by age and occupation.
- The median tenure for workers ages 25 to 34 is 2.8 years.
- The median tenure for employees ages 55 to 64 is 9.9 years.
- Workers in management, professional, and related occupations had the highest median tenure (4.9 years).
- Workers in service occupations had the lowest median tenure (1.9 years).
So, 401k plans are no good and workers don’t stay with one employer long enough to accumulate a pension even if available, what’s the solution?