How employers short changed workers on their pensions

2014

Flash back to 2008-2009; the stock market is crashing and interest rates are dropping. Declining stocks lower the funded status for defined benefit pension plans. Lower interest rates raise pension liability calculations.

Both of these situations were temporary and CEOs and CFOs knew this and no doubt their actuaries advised them so in any case.

No matter, many employers took the crisis as an opportunity to freeze pensions, change benefit formulas and otherwise reduce the value of future pensions for workers who were counting on the pensions and who paid for the “promised” benefits through lower cash compensation over decades. In addition, many companies froze wages; not providing raises for a year or more. This in itself lowered future pension costs as well.

Now it’s 2014 and guess what, the stock market has recovered and interest rates are rising.

As you can see from the report below, pension funds have increased funded status and higher interest rates have lowered liabilities. Amazingly corporations have come out ahead with permanent savings while workers are permanently facing lower pensions, delayed retirement and broken promises or at very least undermined reasonable expectations.

But what the heck, those corporate numbers look better.

Brilliant eh? The retirement system or lack thereof is collapsing, the President introduces yet another retirement vehicle, Senator Tom Harkin has just released legislation for a national defined benefit pension system with automatic enrollment. What a disjointed mess and still nothing will get people to save adequately. Nice try everyone, but perhaps a coordinated effort looking at all retirement vehicles and coming up with an actual strategy and plan would be nice. The more we complicate all this, the more people will be paralyzed into inaction.

Who was it who said “Never Let a Good Crisis Go to Waste” (Winston Churchill actually).

Funded Status of Corporate Pensions Improved Significantly During 2013

January 17, 2014 UNITED STATES Brendan McFarland

A GLANCE

During 2013, the funded status of corporate pension plans jumped to the highest level since before the 2008 financial crisis.

Strong equity returns and employer contributions gave plan assets a boost, and the higher interest rates used to measure pension obligations reduced liabilities.

Stronger pension fund balance sheets will reduce required cash contributions in the near future.

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via Funded Status of Corporate Pensions Improved Significantly During 2013 – Towers Watson.