A History of Pension Plans and Why You Probably Don’t Have One…

Let’s go back 70 years to begin this history.  The Great Depression was a huge economic problem of the 1930s that changed America, and the world, forever. But World War II helped solve this problem. Spending for military arms and supplies employed every able working person, including women.  Ranchers grew sheep to make warm coats for the military and rubber manufacturers and ship builders were in full production.  The attack on Pearl Harbor on December 7, 1941 woke up Americans to the reality of war and brought the United States into the conflict.
Once in the war, a potential problem weighed heavy on everyone’s mind: When the war ended and soldiers came home, would there be enough jobs for all of them?  But at war’s end in 1945, returning soldiers created the “Baby Boomer” generation and a demand for housing, schools, automobiles and much more, projecting the U.S. economy towards its healthy upward climb for the next 50 years.   To illustrate the magnitude of this growth, realize that currently 10,000 people are turning age 65 every single day.  This will continue for 17 more years and this is why our economy exploded and created the longest expansion cycle since America was born!
But in the late 1940’s and 50’s employers began to find it hard to recruit quality employees, so pension plans were created to attract and keep good workers.  Employees stayed with the same company for 40 years and then retired with the quintessential “gold watch.”  From the 1940’s until about 1990, when the computer industry became fully developed, pensions were alive and kicking. A “vesting” schedule was created with every pension that would not allow an employee to receive the promised retirement income without so many years of service.  Initially it was 25 years before a pension could turn on income.  But the U.S. Department of Labor started to force this number of years down until the standard length of employment to become 100 percent vested was 10 years.
Pensions were successful at attracting and keeping quality employees until about the mid 1970’s, when innovations, new technology, and improved travel and communication started adding brand new industries to the economy so fast that employees quit their jobs after only a few years for better pay elsewhere.  Also, many people would take their vested pension money and use it to startup a new business and compete against their former employer.  Employers were caught in the middle with the expense of contributing to pension plans only to lose employees after 10 short years.  
Enter the 401(k) and IRA. To “solve” the problem, the 401(k) and IRA were created by Wall Street in the 1970’s to give employers an escape route from the pension expense.  These plans are simple to set up and if the employer doesn’t have the money to match contributions, they just don’t.  And what is worse, the employee is totally responsible to know where to invest his/her money, when to retire, and so forth.  The employee is totally responsible, not the employer.  This is in stark contrast to a pension plan, which guarantees how much money will be paid for the lifetime of the employer and his/her spouse. Pensions have no retirement risks at all. Today’s 401(k) participants are in charge of their contributions, savings, when to retire, and so forth and take huge risks with the volatility of the market. In my opinion, these tax-deferred “retirement” savings programs are mostly a joke and can never replace the power of a pension.
Here is really bad news.  The pension plans of the past are long gone. There are only a few companies out there that still offer such benefits. Government workers and military personnel are about the only people receiving pensions these days and as I noted in a recent post, What Few Pensions that Were Left Are Going Broke, these government pensions are dying now as well. Social Security is a “pension plan” for the poor.  It was established for those starving to death in 1935 and gave them some money to work with.  But the federal government is trying to get rid of this too, and no wonder — it was intended to offer basic benefits for the very poor and is administered through the welfare department.  It was not meant to fund everyone’s retirement, especially the millions of Baby Boomers that were a product of the end of the Great Depression and World War II — the amount required to do this is simply too expensive so it, too, will become insolvent in years to come.
If you only have Social Security pension benefits to fund your retirement income that means you have failed to save, failed to control spending, and failed to get out of debt.
The good news is that you can correct this problem!   If you take action today by hooking up with a good financial coach (not a financial adviser, a coach, which is different) you will learn innovative ways to fund retirement that do not require you to be part of the “herd” and can help you get in control before it’s too late. A financial coach will hold you accountable for every aspect of your finances, which includes how you spend, how you save, how you pay off debt, and how you pay taxes.  The longer you go without taking control of your financial future, the closer you come to failure.  Failure means you work until you die. Failure means you are like 91 percent of all retirees who are totally dependent on Social Security. Don’t fail! Get the know-how to change your behavior and make your life end with success. Contact me for more information about how to do this: peter@moneymastery.com, 801-292-1099, or read the book MONEY:  What Financial “Experts” Will Never Tell You available at Amazon.com.