Wednesday, July 11, 2007

Study: Traditional Pensions rapidly disappearing

The Los Angles Times reports nearly two-thirds of employers that offer traditional pensions have closed their plans to new hires or frozen them for all employees.

The latest numbers show a speed-up in the decline of retirement plans in which employers, instead of employees, are responsible for investing retirement money and providing benefits. They also illustrate that the trend is no longer confined to troubled industries such as steel, auto and airlines, but now involves healthy companies such as IBM and Verizon as well.

The survey by the industry-supported Employee Benefit
Research Institute and Mercer Human Resources Consulting shows that most companies that close off their pensions seek to partially offset the loss to employees by increasing contributions to company-sponsored 401(k) s, where employees are responsible for managing their own retirement money.

The new survey found that 25 percent of employers
questioned have closed their pensions to new hires within the past two years while 12.9 percent have frozen their plans for all employees. The survey found that another one-third expect to make similar changes in the coming two years. The survey questioned 162 employers.

The speed-up of pension freezes and closures raises anew the question of whether the Baby Boom generation is financially ready to retire. Some recent studies have suggested that Boomers are not as ill-prepared as previously suggested and that a combination of pensions, 401(k)s and home equity, together with Social Security, will see them through old age. But EBRI analysts suggested these studies may need to be reconsidered.