Brian Henderson has provided some interesting reading in August and now in September he wraps it up with a Pension Value Chain.
So now for Brian Henderson’s Pension Value Chain to work out what we want
Pensions were on their way to becoming a relic in corporate America. Now some companies are bringing them back.
The lost benefit is being revived by a small but growing number of companies to settle negotiations with labor unions or win over employees in fields where recruiting and retaining workers is especially competitive.
Matthew Cronin, 27 years old, is among the 600 workers who recently won the benefit from PECO, Pennsylvania’s largest electric and natural gas utility. He plans to keep contributing to his 401(k), but is counting on the pension to help offset the cuts to Social Security he’s anticipating.
“Having a pension is a big motivator to staying with the company,”
said Cronin, a consultant for PECO who helps customers connect to the grid.
Matthew Cronin
Other employers reopening or starting pensions include IBM, meat processing giant JBS Foods and Northwell Health, a major medical system in New York and Connecticut.
Unlike 401(k)s, pensions are typically paid for by employers and offer a retirement check for life. The plans were hit hard by the 2008 financial crisis, when stocks plummeted and new funding requirements forced many companies to contribute more to shore them up. Many companies froze their plans to stop benefits from accruing, moving employees into 401(k)s.
Less than 10% of private-sector workers participated in pensions in 2024, down from about 30% in 1988, according to the nonprofit Employee Benefit Research Institute. Government workers are much more likely to have one.
But recent changes to some types of pensions have made them less of a financial risk for companies, said John Lowell, a pension consultant at October Three.
Traditional plans generally promise lifetime benefits based on salary and years of service, whether markets rise or fall. To reduce the unpredictability of their pension costs, companies including IBM began converting them to cash balance pension plans in the 1990s.
With this version of pensions, employers credit employee accounts with a preset percentage of pay annually and promise a return that’s often tied to Treasury yields.
Many newer plans instead give workers market-linked returns, similar to a 401(k). That shifts most of the investment risk to employees.
Such changes have reduced many of the funding risks and uncertainties that employers disliked about traditional pensions, said Olivia Mitchell, a pension expert at the University of Pennsylvania’s Wharton School.
We aren’t going back to a pension-based system, but there is
“a selective revival under way,” she said.
In 2023, nearly 26,000 employers—most of them relatively small—had cash balance plans, up from about 23,000 in 2020, according to FuturePlan by Ascensus, a plan administrator.
Market conditions are also pushing companies to rethink pensions, including rising stock prices and higher bond yields, which make it easier to meet future payouts.
Many pensions—both active and dormant—now have surpluses, pots of money they can use to fund pension benefits for current employees. The top 100 U.S. corporate pensions now have enough assets to cover 112% of their liabilities, up from 77% in 2012, according to pension consulting firm Milliman.
Efforts by unions to restore pensions have prevailed at airlines including Delta and Southwest, which recently started cash balance plans for pilots.
“There is a groundswell from the participant side to get these things going again,”
said Zorast Wadia, a principal at Milliman.
Northwell Health started rolling out a pension last summer for nurses and administrative staff.
Earlier this year, meat processing company JBS began contributing to a new pension for its approximately 26,000 hourly workers. Jointly managed by JBS and the United Food and Commercial Workers International Union, the plan is open to workers from other meatpacking companies and currently requires most retirees to take a lifetime income, rather than offering a lump-sum option.
The union said it pushed for the pension because fewer of JBS’s hourly workers, who earn an average of about $24 per hour, were saving in the 401(k) than are in the pension.
Jim Ridderbush, a union steward at JBS’s Green Bay, Wis., plant, said that while the older workers are excited,
“the younger kids don’t really understand what a pension is. It’s a dinosaur.”
This work by Go Pensions is most important to any employer considering their DC pension now CDC is a workplace pension alternative.
