The Federal Government Gave Up on Retirement Security

[Eugene]

Source: The Atlantic

The Federal Government Gave Up on Retirement Security

As companies shortchange employees with pensions, Treasury and Labor look the other way.

MAR 30, 2019
Joshua Gotbaum
Guest scholar in the Economic Studies Program at Brookings

Recently, the U.S. Treasury said that it is perfectly okay for companies to swindle employees out of their pension by offering one-time payments worth less than the pension that those employees are giving up. The Department of Labor, nominally responsible for protecting workers in retirement plans, said nothing. This isn’t the first time the government stood by as American businesses shifted risks onto their employees and retirees. Treasury and Labor, whose decisions shape the retirements of millions of people, have for years been letting companies offer a one-time payment instead of the lifetime pension they committed to.

The scandal is that the one-time payment doesn’t even have to be equal in value to the pension. It can be worth less—in fact, under rules passed by Congress and regulations issued by the Treasury, it usually is.

Lawyers for Treasury and Labor are famous for requiring voluminous disclosure of incomprehensible minutiae, yet neither department has ever required companies to mention their profit-taking at their employees’ expense. Employees, in theory, are free to figure this out on their own, but companies know that most will not.

How did this happen? Traditional employer-backed pensions that paid a lifetime income used to be the main form of retirement plan in the United States. In 1974, Congress enacted the Employee Retirement Income Security Act to preserve and protect these pensions. Responsibility for implementing ERISA was then split between Labor and Treasury. (The Pension Benefit Guarantee Corporation, which I ran from 2010 to 2014, also has some duties.) The departments turned out to be so inflexible that employers decided to abandon traditional pensions. Companies quickly learned that rather than being on the hook financially and legally for paying a lifetime pension, they could switch and offer a 401(k) savings account that pays a lump sum. Having done that, employers also wanted to unload the pension obligations they had already taken on, so Treasury gave them the option of offering employees an up-front payment instead of a lifetime guarantee.

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Read more: https://www.theatlantic.com/ideas/archive/2019/03/how-government-gave-retirement-security/585790/

[keithbvadu2]

1. It is a gamble either way for the employee.

It is a gamble either way for the employee.

You have to consider if the company will sleaze its way out of future obligations and it may very well be more fiscally prudent to get what you can now.

Sears is shortchanging its retirees on life insurance.

The coal companies are famous for sluffing off retirement obligations to underfunded entities.

[Sherman A1]

4. I am happy to be in a Joint Union Employer Pension Fund

Granted things can still come up and nothing is absolutely guaranteed, but this group of trustees kept us in good shape all the way through the 2007-9 upheavals and while we did take something of a hit, it is far better than many others out there.

[doc03]

2. I was offered a one time payment of $109,000 for my pension, I didn't take it. I

Last edited Sun Mar 31, 2019, 09:10 PM - Edit history (1)

retired in 2009 and have received $1115 a month ever since totaling $117,075. The vast majority of my co-workers took the cash and blew it in a couple years. I was also offered $8600 for a pension from a previous job by the PBGC, I have so far received $21,167 from it. Oh my $1115 pension is also guaranteed by the PBGC as long as the Republicans don't destroy that too.

[Sherman A1]

3. Wise decision

I am sure in some cases the lump some payments make sense, but I believe those to be rare ones.

[3Hotdogs]

5. Wife worked for a company for 3 years. The company took over from another company, then outsourced

her job after the three years.

She was offered a lump sum of around $5k. -- took the pension instead.


So far, she has received over $61k.