Boeing this week added itself to the list of companies that are phasing out defined benefit pension plans. In negotiations with its unions, Boeing is proposing that all new employees be enrolled in a 401(k) type plan supplemented with contributions by Boeing. The proposal is not surprising. Many companies are working to replace their pension plans with defined contribution plans as the only form of retirement security for many workers. The Supreme Court addressed that issue in the recent LaRue case. But will the trend create a retirement crisis in the years to come?
Consider this interview with Brooks Hamilton from 2006. Hamilton reports a yield disparity in 401(k) plans in which many individual workers receive very poor investment performance. According to Hamilton, this “destroy[s] the opportunity for ordinary workers to retire in dignity. They couldn’t get there from here. There is no way. Number one, they are contributing too little, too late for the most part. They are contributing the least, and then they are getting lousy investment performance.”
Much has been written lately on the need for older workers to work longer because of shortfalls in retirement benefits. Pre-retirees expect to work on average a full decade longer than those already in retirement, with nearly half expecting to work early in retirement and one in three working throughout retirement to bolster their savings. This is not likely to change anytime soon. A majority of employers believe that employees prefer higher salaries instead of better retirement benefits. In addition, for those that do have 401(k) plans, they are tapping their 401(k) account for cash and borrowing and withdrawing funds at a record rate.