Pensions and dependence

With the United Airlines pension debacle, and GM's financial problems, I think it is time for us all to talk about the value of pensions. To start the conversation, I'll throw out the first hand grenade...

The Federal Government should outlaw pensions, and those old world companies that still have them should move to 401(k) plans. That should get some people started ;-)

In the early 20th Century we were all convinced that huge corporations were here to stay. Back then it made sense to have a pension. No one trusted the financial markets, and MegaCorp (your employer) would be there for eternity, to nurture you well into your old age. Ever expanding markets and profits would ensure that the enormous financial base on which pensions rely would be ever-present.

WRONG!!!

The only way a person can reasonably(?) depend on a pension is if it has the coercive power of the government (and taxation) behind it. Governments are the only entities that do not rely on the market for their existence. But even THAT won’t protect the weary pensioner. Governments are subject to a force more fickle than markets, Politics.

Under government sponsorship, beneficiaries are at considerable risk. Social Security is a good example of this. The U.S. Government will continue to exist, barring some catastrophic war or revolution. Therefore Social Security will continue to make payments, as long as it is politically expedient. What happens when it is no longer expedient? It is possible that young people could start voting and decide they don't like the existing system. What happens if the underlying tax-base shrinks below a sustainable level (which is happening all over the industrialized world)? Either the system collapses or the payments are reduced to the point of irrelevance. So much for security.

Private corporations do not have the luxury of sovereignty. Corporations (even huge juggernauts like GM) are not immune to the forces of economics. Relying on pensions in the modern context is crazy. Any corporation that continues to push employees into a pension plan does not have the best interests of their employees or stockholders in mind. It leads to unreasonable risk for everyone involved.

In the 70s there were myriad stories of pensioners going hungry because their 'fixed income' was eviscerated by inflation. My Great Aunt was one of them. Now we hear of corporations being brought to their knees under the burden of pensions. At GM there are people facing the real possibility of being laid off before they reach retirement. Those employees will walk away from a lifetime of work with nothing. Those employees that are lucky enough to make retirement will face an uncertain future. Any system that creates such interdependence is detrimental to all parties.

With a 401(k) you always get to take your money with you regardless of the reason for severing employment. It doesn't matter if you're laid off, downsized, quit, or whatever. They give employees much more flexibility and portability. Employers also benefit because their commitment ends with making any matching contributions, and hiring a reputable firm to manage the plan.

Self-reliance is the American way. It makes better citizens and simplifies our lives. We should embrace it. 401(k)s aren't perfect, but they beat dependence.