Source: USA Today
The practice of companies sending monthly retirement checks to their former workers is headed for extinction, and remaining pension funds are in tough financial shape.
Nearly two-thirds of pension funds are considering dropping guaranteed benefits to new workers within the next five years, according to a human resources consulting firm that studied the matter.
Despite gains in the stock market this year, U.S. pension plans are near their worst financial state in two years, according to the new report by Mercer, which casts a spotlight on the escalating cost of past promises to employees.
Most U.S. companies no longer offer defined-benefit pensions, which typically provided guaranteed monthly payments to workers when they retired. But pension funds that still operate must gain in value to ensure they have enough to meet their obligations.
By late 2019, the average pension fund had 85% of the funds necessary to meet its obligations over time due largely to low interest rates, according to Mercer’s 2020 Defined Benefit Outlook.
The firm also reported that 63% of companies with defined-benefit pensions “are considering termination” of the plan within half a decade. That would mean the pensions would be closed off to future participants.
The report comes as corporate pensions continue to disappear.
General Electric announced in October that it would offer lump-sum pension buyouts to about 100,000 former U.S. employees who have not yet begun receiving their pensions.
The company, which has been facing pressure to bolster its finances, also announced plans to freeze pension benefits for about 20,700 salaried pensioners at current levels.