In May, he will begin to receive over $3,000 per month in pension benefits above and beyond his living expenses. At one point in the early 90’s, the State offered him a 401K cash exchange for the existing value of his defined benefit pension. He put in 36 years with the State of Michigan. The combination of the appeal to the American individualistic ambition and cost cutting possibilities were the perfect storm to sell 401Ks over their elder relative. In reality, they were often times a low to modest cost savings over their defined benefit counterparts. 401Ks were sold as the fresh new thing, giving employees all of the power to choose their own investments. Over time, most employers have made the shift from defined benefit pensions to 401Ks. Ironically, 401Ks were originally added to the IRS code as a way for companies to offer additional retirement benefits to high ranking executives, above and beyond their defined pensions. This may be hard to believe, but it wasn’t until the early 1980’s that 401Ks even existed. The History of the Pensionįor generations, pensions were the retirement plan standard for just about every employer. Social Security is a type of defined benefit plan. Most employers offered defined benefit plans at one point. The longer you work and the more you make, the higher your automatic payouts. These plans offer guaranteed automatic payouts in retirement based on a formula that usually takes into account your salary and years of service. ![]() Defined Benefit PlansĪ defined benefit plan is what most of us commonly refer to as a ‘pension’. ![]() ![]() These plans are dependent on the returns of the investments that are chosen within them. There are two types of pensions.Ī defined contribution plan is a type of pension where an employee, employer, or both contribute funds to an employees retirement plan. Why not you? What is a Pension?Ī pension is basically another word for a retirement plan. If you want change, it has to start with someone. So what are these mysterious things called pensions that many of our parents and grandparents lean on in their retirement? Why are they disappearing? And what are our chances of ever getting one? This is an essential issue for our generation, and I encourage you to read on and actively lobby your employer should you see fit. Most twenty-somethings have never and (unfortunately) probably will never sniff the sweet security provided by a pension plan.
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