The days of a guaranteed pension are almost over:
I.B.M., which has long operated one of the nation’s largest corporate pension funds, said yesterday that it would freeze pension benefits for its American employees starting in 2008 and offer them only a 401(k) retirement plan in the future.
The company said that the shift, which is expected to spur still more major companies to move away from traditional defined-benefit pension plans, would save it as much as $3 billion through the next few years and provide it with a “more predictable cost structure.”
I.B.M.’s announcement came at a time when a number of large employers have been freezing their pension plans, meaning that employees no longer build up retirement benefits to reflect higher pay and additional years of employment. Verizon, Hewlett-Packard, Motorola and Sears are among those that have recently frozen pension plans for many employees
I wonder how this will play in rgeards to the health care debate.
The Other Steve
Now Democrats need to get on board, and make the 401k program work better.
From ’97-’99 I was at a company who had a 401k managed by Principal. I lost money, despite the fact that the market was roaring. Why? Don’t know. Mismanagement perhaps, although one of my friends said Principal has the highest management fees in the industry.
What was my option? I had to quit the company to get my money out of there.
401k ought to be disconnected from the employer.
The Other Steve
Oh yeah, and this decline in corporate pensions is why the Social Security pension is even more important.
Privatize the profits, socialize the risk.
jcricket
I do like that you can now put more money into 401ks (up to $15k I think) and your IRAs. But there needs to be some minimum choice in the number of firms running the 401k at your company, and some better rules about disclosing the expenses of your plan/choices.
Frankly, it would be nice if 401ks basically worked like IRAs (which you don’t rollover between jobs). How about if we do away with the distinction altogether? Just have one (set) of Individual Retirement Accounts (regular and roth) with a $20k limit (IRA + 401k = ~$20k max) that are always yours and stay with you even if you get laid off or switch jobs.
Companies who match 401k contributions could still do so. Companies could still contract with firms to help you set up an IRA (like Fidelity or Schwab or whomever) for people who need encouragement/help with their retirement.
Blue Neposnet
I don’t think this affects the healthcare debate too much, if at all. IBM employees will still get retirement benefits in 2008, but they will be paid currently instead of guaranteed. This doesn’t affect what health care benefits they receive.
Paddy O'Shea
“Opinion I can handle, it’s biased narrative posing as objective reporting that really needs to stop.” – Jeff Goldstein, PJ blogger.
So deep and profound is the wisdom in that statement that I have committed it to memory and quote it at every opportunity I get. Always gets a laugh, though I’ve yet to figure out why.
2 words for the retirement crisis: Soylent Green. I cashed out my 401Ks 5 years ago and bought “stressed” homes here in sunny Los Angeles. Worked out really well for me and my family, I must say. All of you “conservatives” and Libertarians who might have placed your ass in the hands of corporate America and its obedient Republican lapdogs are invited to stop by in your hour of need. I feed the dogs around 9 AM and you’re invited to chow down with the pups.
By the way, anybody noticed the Rasmussen Poll lately? No wonder that the freepies aren’t quoting it anymore. From 50% approval 2 weeks ago to 44% approval (54% disapproval) today. Looks like the benefits of President Bush’s Iraq speeches has faded a bit in the minds of the American people. And yesterday’s bloodbath in Iraq isn’t going to help matters much either, I suspect.
Gotta get back to work.
Your Pal, Paddy
srv
Info they’re telling us now is that the 401K will be matched 100% for 6% contributions + 2%, so 14% of income. I think 16% if you were pre-cash plan (most went cash a few years ago). Those of us on the cash plan can still get whatever that ends up being in our balance at the end of 2007 whenever we leave.
New hires get 100% matching on 6%.
Health Care wise, the plans are pretty decent. Me, I pay nothing – a single person in CA choosing Kaiser has no monthly deduction.
The future should be organizations like Kaiser who know what the hell they’re doing.
srv
I’m hoping the reality-distortion field lasts long enough so I can cash out around 2015 (will be 50). Alas, they’ll probably up the penalties as the crunch approaches…
Ancient Purple
John,
Just an interesting bit of trivia for you. Did you know that the State of West Virginia recently switched from a Defined Contribution program (401k) to a Defined Benefit program (lifetime pension) for its state employees citing the need to make sure there is a secure retirement for state workers.
That puts them at odds with states like California (CalPERS) that are doing the exact opposite.
Kudos to your WV for having some common sense and compassion.
Mike in SLO
srv:
I wonder if you have had to use Kaiser for any serious health care issue. Talk to me after you’ve had to go through surgery at Kaiser and then let me know if you still think they know what they are doing. My brother in law who works for the State Prison system has had Kaiser for over 20 years. For the first time, he’s actually used his coverage for something relatively serious, but hardly life threatening: a minor Kidney Stone operation. He gets a different doctor for every visit, has had 2 surgeries, is in constant pain, and can’t ever get an answer for what is wrong. He has never seen the same doctor twice and has to be interviewed each and every time he goes to Kaiser about his prior medical treatment and condition. After being happy with Kaiser, he’s now realizing that maybe he should have paid a little out of pocket and gone with a PPO or something that would allow him to see the same doctor. Kaiser is great when you’re not sick, but it can become a nightmare when illness strikes. But, I will agree with you that as far as HMO’s go, Kaiser is probably about the best. Which is why I, with a life-threatening illness, keep paying out pocket to remain in a PPO–it’s the only way I can keep a consistent Doctor. When you are faced with a severe illness you will understand how important this is.
srv
I agree, as I age and settle somewhere, it would be wiser to move to a PPO. Having been with Aetna, Prudential, Humana, and a couple of others, they all have horror stories (but I’ve been pretty lucky). I think the bigger your metro area, the worse Kaiser may get.
Problem is, when you get something really bad, you need some kind of specialist, and they rarely do primary-care work.
Having lost more than one relative to doctor error, I’m not optimistic about what will happen when I get something chronic…
Jim Allen
All due respect, Blue, but I suspect this will indeed affect the health care debate, albeit indirectly.
Switching from defined benefit systems to defined contribution systems builds in some uncertainty as to the ultimate payouts upon retirement. What you receive depends on the performance of your particular plan, and not on what was negotiated as part of your emplyment agreement. That uncertainty will add to the general angst about how health care is to be paid for — it’s one thing to deal with spiraling health costs when you have a definite income to count on, quite another when that number is more up in the air.
Maybe even more importantly, if companies are cutting and outsourcing their retirement plans to cut their costs, they will definitely consider doing the same to their health benefits for retirees. And once they’ve done it for retirees, the natural progression is to look for ways to cut the costs for current employees. Ultimately, I’m convinced, there will be a single-payer system, a la Canada perhaps, and the decision to go in that direction will be driven by business more than by politicians.
jg
Does any of this really matter? If they make the tax cuts permanent we’ll all be rich!
Jim Allen
Damn, I forgot that!
Woo hoo!
srv
Single-payer, sometime between 2010-2014. Approved by a Republican majority. 70 million boomers can’t be wrong.
The Disenfranchised Voter
And just who again is participating in “class warfare”?
Looks like the middle class has been getting its ass kicked in this war for quite some time now. I guess you can chalk this latest event up as another “victory” for the upper class.
gswift
Just for the record, my parents have had Kaiser for decades. They’ve used Kaiser to deliver 5 children, a masectomy and radiation treatment for my mother’s breast cancer, a subsequent breast re-contruction, knee surgery for my brother in high school, consultation when I dislocated my knee when I was 16, a recent arrythmia for my fathers heart, plus assorted minor injuries like stitches, broken arms, etc. Kaiser’s always been a good experience for us.