Traditional pensions vanishing? It doesn't Matter!

Filed in archive Retirement on January 25, 2006

One of the illusions that are being thrown around a lot lately is that 401(k) accounts are much riskier than pensions. When I say that this is an illusion, it's really true.

For example, just ask yourself the question of why traditional pensions are in so much trouble. Is the answer because they are safe?

People have been throwing around the idea that IBM is cutting back on their pension so that they can attain a better bottom line. What do you want them to do, pretend, like the Social Security pension system, that it will be their when all the workers retire?

Even Jeff Brown, who writes a pretty real scenario for someone looking for a job and considering retirement security as one of the factors, has the mistaken view that the 401(k) is riskier than a pension.

Here is what he says:

"Given that the 401(k) is so much riskier, why wouldn't you jump at a pension-paying job if you could get it?"

"First, because employers probably will continue phasing out traditional pensions. The pension-paying company you join today may scrap the program next week, or next year - or sometime years before you've built up a large enough benefit to keep you comfortable in retirement."

"Second, working life has changed - many of today's workers won't stay with one employer long enough to make the traditional pension pay off."

He is right, in my estimation about the rest. We must face the reality of what is going to happen in the working world. There is no guarantee that there will be a pension for you when you retire. That's a reality. I doesn't matter what the reasons are. Politicians will not be able to give you a retirement, because its not a political issue, even though some are trying to make it one.
Still Jeff goes on to say:

"Clearly, a traditional pension works best for the employee who is with the company for many years and is still there upon retiring."

"Unless you really think you will do that, you're probably better off looking for the job that offers the best pay prospects, so you can invest your own money for retirement. And look for a company with a 401(k) that has a wide range of investing options and a generous matching contribution from the boss."

To make this an end-of-the-world-scenario is irresponsible. It is not that hard to learn to put your money in low-risk investments. To act like the entire pension system is some type of working plan that is being ripped away from workers misses the point that pensions themselves are broken. It is time to have self-directed plans that individuals can take responsibility for.

We don't have to go into endless, fruitless, nasty conflicts as CNN Money reports. But, unfortunately, it will happen. Part of it is simply the human fear of change in and of itself. Unfortunately it will be a long and wasted struggle that could be better discarded by simply flowing with the changes that the practicalities of the real world are dictating.