Like audio cassettes of the 60's, VHS tapes of the 70's, and the RCA Video disk of the 90's, pension plans were great but their time has passed. In 1980, 80% of all retirement plans were fixed benefit plans, pension plan.
Pension plans had defined benefits based on salary and years of service. You paid nothing for the plans and they were not part of gross pay so you didn't pay tax on them. Typically, you would be vested in the plan after 10 or 15 years years service which meant when you reached retirement age you would start receiving a check. That check at 25 or 30 yrs of service would likely be at least half you paycheck and many plans had inflation supplements build in. The bottom line was after you added in social security to your pension, you had a very livable retirement and if you were upper management adding your stock options, you might be making more money retiring than working. Although these plans were good for employees who stayed to retirement, they were a huge liability for growing companies with large work forces. And those who changed jobs frequently, they had no retirement except social security.
Today only 4% of private businesses rely of pension plans for retirement, down from 80% in 1980? There are a number of reason for the death of pension plans in private business but the overriding cause was the structural change in employment.
In the 1970's a number of studies revealed, that a large percent of senior employees who got the highest wages were less productive than new hires at significantly less pay. In the 80's, programs to retain employees to retirement were examined. Programs such as pension plans were changed to tax sheltered plans. This took a huge liability off the company and put it on the shoulders of employees. Since these plans were portable, employees could change jobs without loosing all their benefits. Other programs designed to keep employees such paid college education were cut back, and perks such high travel budgets, yearly conferences for senior employees, automatic yearly raises that simply rewarded years on the job were replaced by incentive raises and bonuses. Changes in healthcare laws made healthcare insurance more portable. Thus the barriers to changing job was disappearing.
The end result was an average worker today changes jobs ever 4.3 years which is almost half of what it was in 1980. The pension plans of the 20th century simply would not work today due to rapid job turnover, and reliance on contract and temp workers. Since pension plans do not transfer, most of the working public would have no retirement plan today.
