Corporate pension plans could become a thing of the past
The number of pension plans offering defined benefits dropped by about 73% between 1986 to 2016.
A new survey suggests that U.S. pension funds are in their worst state in two years. FOX Business Jackie DeAngelis with more.
Despite record-breaking gains in the stock market this year, U.S. pension plans are near their worst financial state in two years.
That's according to a new report from Mercer, a human resources consulting firm, which found that nearly 63 percent of pension funds are considering "termination" of guaranteed benefits to new workers within the next five years. That would close off the pensions to future participants.
The reason pension plans are on their death bed essentially comes down to the escalating cost of the promised payments to former employees: Historically low interest rates have pushed funded positions lower in 2019. By the end of 2019, the average pension plan had 85 percent of the funds necessary to meet its obligations, hovering near a two-year low, according to Mercer.
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The report comes amid a diaspora of pension plans in corporate America, which are increasingly turning to more risk-averse retirement plans, such as 401(k)s. In fact, a majority of American companies no longer offer a long-term, defined-benefit pension plan, which guarantees workers a monthly payment when they retire.
In October, embattled General Electric became the latest company to offer lump-sum buy-outs to about 100,000 former employees who have not begun receiving their pension, while freezing the retiree payments for about 20,700 salaried pensioners.
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"Returning GE to a position of strength has required us to make several difficult decisions, and today's decision to freeze the pension is no exception," Kevin Cox, chief human resources officer at GE, said at the time.
The number of pension plans offering defined benefits dropped by about 73 percent between 1986 to 2016, according to data from the Department of Labor's Employee Benefits Security Administration.