3 Reasons Pensions Need Less Funding per Worker Than 401(k)'s

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Congress and this administration have stood by quietly while
big corporations used illegal cash balance pension plan conversions from the mid-1990s to 2005 to renege on promised pension benefits to their older workers. They froze their traditional defined benefits plans, revoking older workers ability to accrue pension benefits in the very years they should have been adding the most benefits as promised by their employers when they were hired. While Congress outlawed illegal cash balance conversions in the 2006 Pension Protection Act, it did nothing to help the millions of older workers and retirees who were robbed of promised pension benefits. The fact that neither of the presidential candidates are discussing this is a national scandal!

Don Wood of CA 9:32PM August 25, 2008

Dan, you are absolutely correct in regard to your commment on the use of 401(k) plans for estate planning. This is because 401(k) accounts were designed to be SAVINGS vehicles for wealth accumulation, not pension plans, which are designed to provide retirement INCOME.
This article does not malign the use of 401(k) accounts for the originally intended purpose, which includes tax-advantaged wealth accumulation, and yes, estate planning. However, these savings vehicles are not suitable to provide lifetime retirement income benefits.
Most companies who maintain traditional pension plans also maintain defined contribution plans to encourage supplementary personal saving. For companies who wish to promote stable income throughout retirement however, a DC plan cannot operate in that manner as efficiently as a traditional DB plan.

MB of NY 3:53PM August 25, 2008

What will your heirs think when you live too long and run out of money? I'll bet they would rather have you remain financially secure throughout your life after retirement rather than face the prospect of subsidizing you financially and/or have you move in with them.
Ask your heirs for their thoughts on what they want for you in retirement.
If they bet on getting some of your money rather than wanting you to have a financially secure retirement, then take them out of your will and don't count on them subsidizing you financially or taking you in if you run out of money!

John Jensen of NE 8:34AM August 24, 2008

No oversaving: Doesn't this mean that 401(k)s are better for heirs? If I die with $100,000 left over in my 401(k), my heirs get $100,000. If I die with a pension plan, my heirs get nothing.
Allocation stays constant: 401(k) participants have to invest more conservatively when they are near retirement, but shouldn't they have been investing more aggressively when they were younger? And shouldn't their investments have been outperforming pension funds back then?
Higher investment returns: I wonder how much better the pension funds do when compared to 401(k) participants who invest in low-cost index funds, rather than to the average 401(k) participants.

Dan of NC 7:59AM August 20, 2008

Just wait until you see how much you will lose by buying an annuity from an insurer with your 401(k) money to convert a lump sum balance to a guaranteed lifetime income stream.
401(k) is a 1978 tax dodge savings scheme slipped in during the old days of higher tax rates. It was never intended to be a pension replacement. If so, IT WOULD HAVE BEEN GIVEN A NAME.
We refer to is as a code section, because it was enacted with no vision at all for how it would be used. Shame on us. We're stupid.

of 11:00PM August 18, 2008