Traditional Pension Plans are on the Way Out, So What’s Next?

Only 20% of organizations in U.S. still offer traditional pension plans.

There are many ways to save for your pension, as the traditional company plans fade away. However, the important thing is to learn about the alternatives, according to DJC Oregon in “As pensions are phased out, alternatives are sought.”   

Pension plans still exist but they are shrinking, with only 20% of organizations still offering a traditional defined benefit plan open to all employees.

Employers are encouraging their workers to save for retirement, by offering educational resources to help with financial planning. The Society of Human Resource Management (SHRM), a national human resources association, reports that organizations are bringing in retirement experts for group classroom sessions or offering financial advice through online portals.

Many employers offer matching contributions to 401(k) plans, as an added incentive to save. One major employer, Abbot Laboratories, announced a program to help employees save for retirement, while paying off student debt. The employees are eligible for the Freedom to Save program, as long as they are contributing 2% of their eligible pay to student loans through a payroll deduction. The company will match the amount and deposit it into the employees’ 401(k) account without requiring them to make a contribution themselves.

Employers who recognize that their employees spend most of their time at work, can make a difference in the financial literacy and savings habits of their workers. Employers who want to retain the best talent are also willing to offer these kinds of benefits. It becomes a win-win for both the employer and the employee.

A new twist to retirement saving is to encourage retirement saving participation through auto-enrolling employees into plans. Everyone can opt-out and they can change the percentage that is saved. However, the default is to be enrolled.

Some employers take one day and sweep all employees into target-date funds, which are set up as a “set-it-and-forget-it” fund that gets more conservative, as you get older. With this method, employees don’t have to get involved in researching and analyzing their investments or making asset allocations as they age. It’s only done for one day. However, companies do find that many employees decide to leave their funds into those target date funds.

The problem? Companies know that if you are too conservative when starting out, your retirement funds can’t grow as much as is needed. If you take too much risk later in life, your retirement could be at risk.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and options for retirement.

ReferenceDJC Oregon (Sep. 21, 2018) “As pensions are phased out, alternatives are sought”