The heyday of the pension is behind us. But employers can still make retiring more humane for their workers.
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IBM’s new pension program may not change the game for workers. But it raises big questions about what companies owe their employees, and how existing retirement structures could better serve them.
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A One-Off?
In the heyday of the private-sector pension, CDs were just starting to appear on shelves, Prince Charles was courting Lady Diana Spencer, and perms were ubiquitous. Defined-benefit pension plans—with those regular payment checks that Americans typically think of when they think pensions—were widespread across a range of corporations in the 1980s. Now only a very small slice of nongovernment employees retires with such a pension.
So when I read that IBM was offering a version of a defined-benefit pension for its employees, I wondered: After decades of retreat, were pensions back in a big way? Not so fast, experts told me. “The news about IBM is more or less a one-off,” Olivia Mitchell, a professor at the Wharton School of the University of Pennsylvania and the executive director of its Pension Research Council, explained. That’s because IBM’s latest move may be more of a cost-saving tactic than it is a marker of the company’s changing philosophy on retirement savings.
IBM is in a specific boat—the company has a tranche of money saved from its old pension fund that can be spent only on retirement benefits, Jean-Pierre Aubry, the associate director of state and local research at the Center for Retirement Research at Boston College, told me. “This is really just a financial maneuver to get a pot of money that they can’t access in any other way than to provide benefits,” he explained; very few other companies have such bloated trusts lying around. The new approach unlocked billions in funds, and IBM’s shareholders are expected to benefit, given that the firm probably won’t be spending on 401(k) contributions for at least several years. (Aubry said he wouldn’t be shocked to see the company return to such a plan when the pension fund runs out.)
Pensions can make a big difference for workers who otherwise aren’t saving for retirement, ensuring that even those who didn’t actively stash away money in a 401(k) or similar fund will receive some money after they stop working. But over the decades, as the workforce has become more mobile—and as employers balked more and more at the high cost of paying out monthly checks to retired workers—defined-contribution plans such as 401(k)s became the norm. Such plans shift the responsibility of saving for retirement from the company to the employee—if an employee doesn’t contribute to their 401(k), then a company generally won’t contribute to their savings in turn.
But at IBM in particular, it’s unclear whether a return to pension plans will be a game changer for employees: 97 percent of its workers apparently already had a 401(k) plan set up, and the company automatically enrolled workers unless they opted out. “It’s closer to a wash,” Mitchell explained, noting that some workers might actually save less for retirement under this new system. As Jeff Sommer wrote in The New York Times earlier this month, “What [IBM] is doing now is no simple return to the classic cradle-to-grave benefits system. In fact, IBM’s new pension plan isn’t nearly as generous to long-tenured employees compared with its predecessor.” A spokesperson for IBM wrote in an email that its new retirement benefit account “adds a stable and predictable benefit that diversifies a retirement portfolio and provides employees greater flexibility and options,” adding that employees can opt to keep contributing to 401(k) accounts if they want to.
Defined-benefit pension plans have long been idealized, and understandably so. Though pricey for companies, pensions offer an enticing upside for employees: Workers can expect to receive regular checks during their retirement, no contributions required, and they don’t have to shoulder the financial risk of investing. Reviving pension plans was a key demand in UAW strikes over the summer (one that did not end up in its contracts with carmakers), and the promise of a pension is a major appeal of public-sector jobs, most of which still offer the benefit.
But in many ways, experts told me, pensions are not a perfect fit for today’s workforce: 401(k) plans are “much more egalitarian,” Mitchell argued. “If you contribute, you get something.” With pensions, by contrast, if you leave the workforce during your working years, you may not get much from a pension plan. Many workers are also just not that interested in pensions, Mitchell said, some of which required them to spend their entire career at a single company to reap the benefits. And a company may not want to pressure workers to stay at the firm when they want to move on.
Aubry told me that IBM’s new plan has further opened up conversations in his field around how American workers are saving for retirement, and how the 401(k) system can be improved to include some of the pros of the pension system. Could more companies automatically opt in workers, for example, ensuring that everyone is stashing something away? As things stand now, he said, the people who tend to invest money in 401(k) plans are those who are already relatively wealthy, and there are gender and racial gaps in who saves for retirement. Only about half of private-sector workers are participating in any sort of retirement plan at all.
Mitchell and other experts are also interested in what actually happens to people’s money once they retire. Receiving a lump sum of retirement funds after decades of saving can be overwhelming to those who might stress about spending it too fast, and tempting to those who want to make big purchases. She has advocated for the annuitization of 401(k) plans, so that people get checks in the mail each month, rather than a chunk of cash at the end of their career. Even if 401(k) plans are not there yet, Mitchell said, they “can become the best of both worlds.”
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Social-media testimonials claim that improving your “gut health” not only helps with stomach issues such as bloating and pain but also leads to benefits beyond the gastrointestinal system (easing problems including, but not limited to, itching, puffy face, slow-growing hair, low energy, acne, weight gain, and anxiety). You can now find a staggering range of products claiming to support digestive health: Joining traditionally gut-friendly fermented foods such as yogurt and sauerkraut are “probiotic” or “prebiotic” teas, cookies, gummies, supplements, powders, and even sodas.
The reality is less straightforward.
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Stephanie Bai contributed to this newsletter.
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