Is the retirement system headed for a bust?

Executive Summary

For much of the 20th century, pensions were as much a part of the employment landscape as the 40-hour workweek. But two stock-market crashes and record-low interest rates since the year 2000 have made the plans much more costly and volatile for even the healthiest of companies. As a result, the move away from pensions to 401(k)-type plans is accelerating, with fewer and fewer employers offering a “defined benefit” plan that specifies what will be paid to a retiree. Advocates of the 401(k) say these “defined contribution” plans are more appropriate for today's workforce, which is more mobile and more interested in flexibility than in the past. Others say that many employees, given much greater responsibility for providing for their own retirements, aren't saving enough for their golden years. The decline of pensions is forcing experts to grapple with tough questions, big and small. If the defined benefit pension is the plan of the past, and defined contribution plans risk leaving workers short of money for retirement, should the plan of the future try to combine the best elements of the two? Others say society needs to rethink how people approach retirement. With workers living longer, should they work longer too?

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Clark, Robert L., Lee A. Craig and Jack W. Wilson, “A History of Public Sector Pensions in the United States,” University of Pennsylvania Press, 2003. This history of public pensions in the United States runs from colonial times to the 21st century.

Greenhouse, Steven, “The Big Squeeze: Tough Times for the American Worker,” Alfred A. Knopf, 2008. A veteran New York Times labor reporter details the decline of “the social contract” and its implications for wages, benefits and retirement security.

Hacker, Jacob S., “The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and Retirement and How You Can Fight Back,” Oxford University Press, 2006. As part of a broad look at the risks Americans face, a Yale University political scientist details how workers' retirements may be jeopardized through an overreliance on defined contribution plans.

Lowenstein, Roger, “While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis,” Penguin, 2008. A financial journalist-turned-author uses three case studies in the private and public sectors to show how pension mismanagement puts shareholders and taxpayers at risk.

Sass, Steven A., “The Promise of Private Pensions: The First Hundred Years,” Harvard University Press, 1997. The program director of the Financial Security Project at the Center for Retirement Research at Boston College wrote this comprehensive history of pensions while at the Federal Reserve Bank of Boston.


Kozlowski, Rob, “Corporate Pension Plans Mark Sad Milestone,” Pensions & Investments, Feb. 3, 2014, The news journal for the pension industry notes no corporate pensions are among the 10 largest in the United States, and traces the reasons why.

Tong, Scott, “Father of modern 401(k) says it fails many Americans,” Marketplace, June 13, 2013, The financial consultant who pressed to give workers a tax advantage for saving looks back on how the 401(k) has turned out, more than three decades later.

Tracer, Zachary, “Prudential Piles on the Corporate Pensions,” Bloomberg Business, Dec. 18, 2014, Corporations increasingly are paying insurance companies to take over their pension plans.

Walsh, Mary Williams, “No Smoke, No Mirrors: The Dutch Pension Plan,” The New York Times, Oct. 11, 2014, A veteran pension reporter describes how the pension system in the Netherlands differs from that of the United States, and what Americans can learn from it.

Reports and Studies

“Corporate Pension Plan Funding Levels Declined in 2014, Reversing Much of 2013 Gains, Towers Watson Analysis Finds,” Towers Watson, Jan. 5, 2015, Annual study by a leading consulting firm tracks pension funding at Fortune 1000 companies.

“Pension Benefit Guaranty Corp. Annual Report 2014,” The government corporation that insures private-sector pensions details its funding status and other financial matters each year in its annual report.

Biggs, Andrew G., and Jason Richwine, “Overpaid or Underpaid? A State-by-State Ranking of Public-Employee Compensation,” American Enterprise Institute for Public Policy Research, April 2014, The authors, affiliated with conservative free-market think tanks, argue that governments give public employees more compensation, including pensions, than similar workers in the private sector.

Copeland, Craig, “Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2013,” Employee Benefit Research Institute, October 2014, A researcher with the nonprofit Employee Benefits Research Institute details how participation in retirement plans at work differs by age and income, among a number of characteristics.

Ehrhardt, John, and Zorast Wadia, “Milliman 100 Pension Funding Index,” Milliman, January 2015, Annual study by a leading consulting firm tracks pension funding at the 100 largest private-sector plans in the United States.

Munnell, Alicia H., “401(k)/IRA Holdings In 2013: An Update From The SCF,” Center For Retirement Research, Boston College, September 2014, A specialist in retirement issues examines typical account balances in U.S. retirement accounts and what the numbers imply for their holders' retirements.

Sielman, Rebecca A., “Milliman 2014 Public Pension Funding Study,” Milliman, November 2014, Annual study by a leading consulting firm tracks pension funding at the 100 largest public-sector plans in the U.S.

The Next Step

Defined Contribution Plans

Epperson, Sharon, “Surge in 401(k) millionaires as balances hit highs,” CNBC, Jan. 29, 2015, Stock market growth and increased employee contribution rates elevated the average 401(k) balance to a record $91,300 in 2014 for customers of financial services company Fidelity Investments.

Nissenbaum, Dion, “Independent Panel Proposes Changes to Military Pensions,” The Wall Street Journal, Jan. 27, 2015, An independent panel assessing the military's benefits system recommends the Pentagon replace its defined benefit pension plan for service members with a defined contribution plan similar to that offered to other federal employees.

Wang, Penelope, “The Extreme IRA Mistake You May Be Making,” Time, Jan. 13, 2015, Nearly 60 percent of individual retirement account (IRA) owners in 2012 engaged in “extreme” investment behavior by allocating more than 90 percent of their contributions to stocks, bonds or equities, according to a study by the nonprofit Employee Benefits Research Institute.

Insurance Companies

Fletcher, Michael A., “Can insurance companies save public pensions?” The Washington Post, Sept. 11, 2014, Sen. Orrin Hatch, R-Utah, proposes a bill allowing state and local governments to turn over their underfunded pension plans to insurance companies, which would then make monthly payments to state and municipal employees.

Monga, Vipal, “Longer Lives Cut Premium to Offload Pensions,” The Wall Street Journal, Feb. 3, 2015, Prolonged life expectancies for employees have reduced the premium costs companies must pay to transfer their pension obligations to insurance companies, according to a study by a human resource and financial services consulting firm.

Morley, Katie, “Pension errors: the scandal widens,” The Telegraph (U.K.), Feb. 1, 2015, A Telegraph investigation reveals that several British insurance companies miscalculated the values of individual employee pension funds purchased from companies for several decades, causing them to underpay tens of thousands of pension recipients.


Becker, Bernie, “Dems push automatic IRA bill,” The Hill, Feb. 22, 2015, Sen. Sheldon Whitehouse, D-R.I., and Rep. Richard Neal, D-Mass., introduce legislation that would set up automatic IRA funds for American workers whose employers do not provide retirement savings plans.

Brooks, Rodney, “Some states move to help spur retirement savings,” USA Today, Jan. 27, 2015, Legislators in California, Connecticut and Oregon plan to introduce statewide “Work and Save” plans similar to Illinois' recently adopted retirement savings program, which provides individual retirement accounts for workers without employer-sponsored programs.

Harper, Jennifer, “No more ‘ruling class culture’: New legislation would jettison pensions for Congress,” The Washington Times, Feb. 2, 2015, Rep. Ron DeSantis, R-Fla., introduces a bill that would eliminate federal pension plans for future members of Congress, calling them an “inappropriate use of taxpayer money.”

Public-Sector Pensions

Popper, Nathaniel, “Goldman Hired to Manage $2 Billion of New York Public Pension Fund,” Sept. 10, 2014, The state of New York hired investment banking firm Goldman Sachs to invest and manage $2 billion of its total $180 billion in pension fund holdings for state employees.

Tergesen, Anne, “A Pension Before Age 40: Are Military Benefits Too Rich?” The Wall Street Journal, Feb. 4, 2015, Two economists argue that the U.S. military should raise its eligibility age for service members to receive pension benefits—currently 37 years—to lower its future unfunded pension liability, which reached $934 billion in 2012.

Whaley, Sean, “Study: Many public-sector retirees making more than they did on job,” Las Vegas Review-Journal, Jan. 22, 2015, According to a conservative think tank's analysis of Nevada government employee data, the average state or local government employee with 30 or more years of service makes more per month in pension benefits after retiring than he or she did when working.


Center for Retirement Research at Boston College
Hovey House, 258 Hammond St., Chestnut Hill, MA 02467
Academic center that produces research on “anything involving money and retirement.”

Employee Benefit Research Institute (EBRI)
1100 13th St., N.W., Suite 878, Washington, DC 20005
Group, backed by corporations and some public pensions and unions, conducts research to encourage and enhance sound employee benefit programs.

1166 Avenue of the Americas, New York, NY 10036
Consulting firm, a subsidiary of Marsh & McLennan Cos., with global employee-benefits practice that publishes studies on corporate pension health.

1301 Fifth Ave., Suite 3800, Seattle, WA 98101-2646
Actuarial and consulting firm that publishes studies on corporate pension health and other benefits issues.

National Coordinating Committee for Multiemployer Plans (NCCMP)
815 16th St., N.W., Washington, DC 20006-4101
Organization of multiemployer pension plans, unions, employers and their associations, as well as fund professionals.

Pension Benefit Guaranty Corp.
PO Box 151750, Alexandria, VA 22315-1750
Federal corporation that insures private-sector defined benefit plans.

Pension Research Council
The Wharton School, 3620 Locust Walk, 3000 Steinberg Hall–Dietrich Hall, University of Pennsylvania, Philadelphia, PA 19104-6302
Academic organization that generates debate on policy issues and employee benefits; maintains a large collection of academic papers on pension topics.

Pension Rights Center
1350 Connecticut Ave., N.W., Suite 206, Washington, DC 20036
A consumer organization that advocates for workers' and retirees' retirement security; its website has a number of fact sheets and reports on companies that have changed their pension plans.

Pensions & Investments
685 Third Ave., 10th Floor, New York, NY 10017-4036
Magazine and website producing news and databases for pension, portfolio and investment management executives.

Towers Watson
335 Madison Ave., New York, NY 10017-4605
Consulting company that publishes studies on corporate pension health and other benefits issues.

U.S. Department of Labor
Frances Perkins Building, 200 Constitution Ave., N.W., Washington, DC 20210
Produces and enforces regulations related to the Employee Retirement Income Security Act (ERISA), the federal law governing defined-benefit pensions.

DOI: 10.1177/2374556815577625