It seems hard to believe now, but once upon a time, pension actuaries were engaged in trying to find new directions for retirement plans.
It seems hard to believe now, but once upon a time, pension actuaries were engaged in trying to find new directions for retirement plans.
Hi Jane, love your thoughts! As to the question of why DB plans continue to decline and target benefit plans and other hybrids never really caught on, I suspect it comes down to increased comfort with investment risk. The generation that fought for and won defined benefit pensions would never have dreamed they could run their own investments. Investments were inaccessible for most people and the knowledge of how to invest wasn’t widely known, so it’s understandable one would hesitate to take on investment risk. Starting in the 80s with the advent of lower cost advisory, and really the wide dissemination of information relating to investing, more and more people started investing their own money. This democratization of the investment industry has progressed to such a state today that everyone and their dog seems able to run a portfolio or at least has a friend who will do it for them. So they’re not as fearful as people once were about taking the investment risk. Add to this the great pension surpluses of the 1990s, and the great returns of the last 10 years ( notwithstanding the last month) and I believe people generally have the expectation that investment returns will over time make up for any other deficiencies of DC/401k plans.
I read your article in Forbes on “missed chances” with great interest. I was in the pension actuarial field for about 25 years. It occurred to me during the Obama administration’s fight to steady the economy in the wake of the credit crisis and resulting meltdown that Obama missed a golden opportunity. Interest rates have been historically, almost shockingly, low since quantitative easing began. With such low interest rates it would have been a golden time to push for a new type of defined benefit plan, especially with those tech companies that came up in the 2000s, and remain staples of our modern economy. Contributions would never be higher because of interest rates, and they have missed all the market growth in the intervening period. Corporations that could be convinced that a new DB plan would have minimal impact on their bottom lines could have provided enormous retirement savings for a young, gig economy generation if only forward thinking had been applied. *sigh* It’s a missed opportunity, now. And, apropos of the gig economy, where is Congress when it comes to protecting those workers’ retirements? A lot of misses, and no hits.