Pensions & Other Fairytales

US Steel, Delphi, Delta, and Northwest Airlines are just a few of America's giants that have recently declared bankruptcy, due (in part) to their staggering pension obligations. According to a recent USAToday article, half of all pension plans offered have been lost over the last decade — and today, less than 10% of employers offer a pension plan at all. The handful of companies brave enough to continue the practice are cutting-back or freezing benefits.

The federally-funded Pension Benefit Guarantee Corporation (PBGC), which backs all pension plans in America, estimates that pension plans across the board are under-funded by some $450 billion — a shortfall that the PBGC is struggling to address as Congress attempts to deal with a staggering, war-induced deficit. And there's no plan on the horizon.

But what about your IRA or 401(k)?

It would be nice to say that IRAs and 401(k)s fill the hole left by pensions, but they don't. To begin, instead of being part of a well-conceived, well-executed retirement program, IRAs and 401(k)s are part of employer incentive packages, and as such, must vie with health plans and other perks for scarce funds that employers would rather be spending on marketing and capital improvements. And when the employee finally moves-on to a new job, it can be a real nightmare to transfer funds to the new account (such a nightmare, in fact, that some employers advertise that they'll help with the roll-over as part of their incentive program!).

To make matters worse, a properly funded plan which allows employees to contribute pre-tax dollars, can become a real liability when it comes time to actually retire and the IRS calls for their piece of the pie.