When 401(k) retirement savings plans came into practice in 1981, they were lauded as a great benefit for workers. But in the 40 years since the 401(k) became synonymous with “retirement,” it’s become clear the benefit was for employers—not so much their employees.
When Congress passed the Revenue Act of 1978, it included Section 401(k) which allowed employees a vehicle to defer compensation from bonuses and stock options until retirement. Then in 1981, through an IRS rule, employees were allowed to contribute to their 401(k) by simple salary deductions, which opened the door to companies across the United States ending pensions and installing the 401(k) system for retirement savings.
What this did was place all the burden to save for retirement on the workers while failing to guarantee lifetime income upon retirement. It made savings portable and gave those without access to a pension a way to save for retirement, but it also placed financial risk on the employee and excused companies from providing a dignified retirement for its workers.
“The great lie is that the 401(k) was capable of replacing the old system of pensions,” former American Society of Pension Actuaries head Gerald Facciani told The Wall Street Journal in 2017. “It was oversold.”
For those without access to a pension, a 401(k) is a good vehicle to save for retirement. But if you do have a pension, and your company wants you to vote to end pension contributions in favor of a 401(k), beware: It’s not in your best interest. Using a 401(k) for retirement shifts the responsibility of saving for retirement to you, the employee. Your savings will be subject to the whims of investment market forces with no guarantee your 401(k) savings will last through retirement. Instead, moving from a pension to a 401(k) is a way for the company to save money by reducing its risk and lowering their contribution dollars.
Pensions, on the other hand, provide you with a source of stable and predictable income that will last through retirement. The employer or organization manages the risks of investments; and as the employee continues to work, they see a steady increase in their pension, resulting in a true “deferred compensation” they can count on.
The Boilermaker-Blacksmith National Pension Trust (“the Plan”), established in 1960, is one example of a pension that is committed to the dignified retirement for members of the Boilermakers union. The pension offers a lifetime benefit in specific monthly payments, based on hours and contributions worked and reported to the Plan. It’s a Taft-Hartley multiemployer plan governed by an equal representation of labor and management trustees.
Participants work in a wide variety of industries: field construction, manufacturing shops, shipyards, forging and metal trades. Because Boilermakers’ pension benefits are portable, members can continue participating in the Plan if they move from one participating employer to another participating employer.
As Boilermakers National Funds states—they’re “always protecting our Boilermaker family.”
Through expert management of the National Pension Trust, the trustees announced good news earlier this year that the changes implemented to secure the health of the pension have worked. The pension is now in the green zone, several years ahead of the estimated schedule. To maintain the continued good health of the pension, the Plan must stay the course and continue operating with its previously implemented changes.
IVP-NE John Fultz, Secretary for the Boilermaker-Blacksmith National Pension Trust and also Secretary for the Boilermakers National Health and Welfare Fund, said it takes a lot of hard work from the trustees and the Boilermakers National Funds (BNF) team to oversee our Boilermaker Pension, Health & Welfare and Annuity Funds.
“Since 2013, under the direction of the trustees, the BNF team has saved $1,003,166,043 for our Boilermakers family by performing audits, monitoring our business partners and negotiating business partner contracts,” Fultz said.
In a defined benefit pension plan, employers (and in some cases employees) contribute to an employee’s retirement.
Employers carry any investment risks for a defined benefit plan.
All fees associated with a defined benefit pension plan such as the Boilermakers-Blacksmith National Pension Trust are paid out of plan assets with participant fees averaging (over the last 5 years) under $11,000 over a Participant’s lifetime.
A defined benefit pension plan guarantees income for life.
Pensions offer a lifetime benefit in specific monthly payments, based on hours and contributions worked and reported to the Plan.
A 401(k) plan allows employees to contribute a percentage of their pretax income to retirement savings. Employers may or may not contribute, as it varies depending on the workplace.
A 401(k) shifts risk to individual employees.
In a 401(k) plan, all fees such as investment fees, plan administration fees and individual service or transaction fees are all paid by the worker. A typical American worker starting their 401(k) at age 25 can expect to pay over $130,000 in fees over a lifetime.
There is no guarantee of a lifetime benefit with a 401(k).
At retirement, an employee can use the money accumulated in the account through savings and investments until the money is gone. Many retirees run out of money after a few years of retirement because they do not understand how to properly “draw down” or spend their 401k account to make it last for their lifetime – it takes much discipline! Experts suggest drawing just 4% of your retirement per year to last for lifetime.
