Tuesday, March 1, 2011


A new research brief finds that private sector companies have trended away from offering pensions to employees because of an onerous regulatory environment.

Since the 1970s, laws and regulations have created funding volatility for companies sponsoring pensions, rather than facilitating predictable costs that enable companies to effectively manage cash flow. These findings are contained in a new research brief, "Who Killed the Private Sector DB Plan?" released today by the National Institute on Retirement Security.

A wide body of research has focused on the numbers of companies trending away from pensions, yet substantially less attention has focused on the specific reasons why. In 2005 only 33% of private sector employees with workplace retirement plans had pensions, yet coverage was at 85% in 1975. This research brief examines the root causes behind the trend and finds that:

• Pensions are effective for employers and employees. Pensions offer employers a cost-efficient, useful workforce management tool for employee recruitment and retention. For employees, pensions help ensure adequate and predictable income in retirement.

Despite the advantages of pensions, private sector employers have been closing and freezing their pensions due to onerous laws and regulations enacted since the 1970s, including the Pension Protection Act of 2006. These rules created complicated funding rules, and increased contribution volatility when employers need steady, easy-to-estimate costs from year to year.

• Companies may not understand that employees value pension benefits. NIRS research indicates that nearly nine out of ten Americans believe all workers should have a pension to help ensure retirement security, and some 84% believe policymakers should make it easier for employers to offer pensions.

"Americans soon will start to feel the sharp sting of the trend away from pensions as the first of the 78 million Baby Boomers turn 65 this year," said Diane Oakley, NIRS executive director. "Individual retirement savings are woefully underfunded - the median household headed by a person aged 60 to 62 with a 401(k) account has less than 25% of what is needed to maintain its standard of living in retirement," she said.

"This retirement shortfall will have negative consequences for individuals, the U.S. economy, the job market, and governmental public assistance programs. It's a troubling forecast, Oakley added.

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