Nearly 8 in 10 Americans think all workers should get a pension through work — do you agree?

Signs of a pension comeback

The NIRS findings comes just as the nonpartisan Committee for a Responsible Federal Budget (CRFB) projects that Social Security will become insolvent by 2033, setting the stage for a 21% cut in payouts. Could the state of affairs in late-2024 set the stage for a pension comeback? Perhaps.

In January, IBM ended its 5% dollar-for-dollar match on 401(k)s for its roughly 300,000 employees and switched to a defined benefit (DB) plan with an automatic company contribution of 5% (“defined” because the employer promises a specific monthly benefit, the cornerstone feature of all pensions).

By April, an expert cited by the Society for Human Resource Management predicted more pension announcements would come and that at least two more major companies would unveil plans in 2024.

IBM’s switchover scenario provides a helpful example for understanding how a more widespread pension system would work.

Pensions are not replacing the 401(k) accounts altogether; instead, they have become the primary vehicle through which the company directly contributes to retirement security.

IBM's pension provides a 6% guaranteed, tax-deferred return for the first three years and, from 2027 through 2034, it will follow the 10-year Treasury rate, which currently sits at 4.31%, at the time of this writing.

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Where the U.S. sits on the pension map

The Mercer CFA Institute’s 2023 Global Pension Index ranks the Netherlands as having the world’s best pension system, with a score of 85.0, followed by Iceland (84.8), Denmark (81.3) and Israel (80.8).

The shared characteristics of these systems include low operating costs, strong government support, robust regulation, and financial stability.

Compare that to the U.S., which scores a 63.0 for its retirement system, placing it behind Croatia, Kazakhstan, and Uruguay.

As of February, Social Security and Medicare were underfunded by $175 trillion.

Meanwhile, American companies shun pensions because of the financial risk involved. Pensions guarantee set payouts that last throughout an employee’s life and are thus impervious to the stock market swings that make many retirement account holders nauseous.

In more common plans, such as the 401(k), the account holder assumes the risk, meaning employers aren’t obligated to pick up the slack if your nest egg drops in value.

In a bitter concession, Boeing employees lost their pensions in 2014 and have hardly forgotten; picket signs brandished by the 33,000-plus union members currently on strike bear slogans such as “no pensions, no planes.”

But if the machinists think they have the embattled aircraft manufacturer on the ropes, the fact is that pensions outside of government work and the public sector are rare.

As of March 2023, 73% of civilian workers had access to retirement benefits, while 24% had access to pensions, according to the U.S. Bureau of Labor Statistics (BLS). Teachers, police officers, and military service members were listed as employees who commonly received them.

Whether employees in a broader range of occupations will join them will be decided on a case-by-case, company-by-company basis.

Yet, the more businesses that follow IBM, the larger the overlap between those Americans who desperately want pensions and those who actually have them.