December 3, 2009

What happened to Pensions? Is Social Security next?

Once upon a time, in a land called the United States, an employee would work for one company for 50+ years and could eventually retire from their job and live out the rest of his/her life knowing their expenses would be covered by their employer sponsored pension plan.  Not too long ago, pension plans were the norm and if you worked hard and long with one employer you could expect to get a pension in addition to whatever Social Security paid you.  

Due to the large expenses associated with pension plans, and that every employee was entitled to one, companies at one time operated with smaller profit margins.   But as time went on, employers could not afford to guarantee everyone a check for life and eventually had to become more competitive on a global basis.  Because of the growing need to have access to more cash, cut operating costs, and expand revenues,  one solution was to expire the pension plan (which guaranteed employees income for life) and replace it with the now popular 401K plan.

401K plans force employees to save for their retirement, as opposed to guaranteeing them an income for life.  This way companies can cut costs associated with pension plans - and pass this cost onto its employees.  As companies are pressed to cut even more costs they'll eventually pass off healthcare to us as well.

What will come to be when the government cannot afford to pay out Social Security anymore?  This entitlement program has been operating at a deficit for decades now - and no bailout in sight.  Just as companies could not afford to pay out pension plans - the government cannot continue to pay out Social Security.  With an increasingly aging population soon to retire in the next 5 years (if they can retire), the United States is facing an enormous bill we can't afford.  Senators who foresee this as a "too big to fail" challenge, decided to postpone a solution by recently increasing the retirement age from 65 to 67.  This will help...for now.

Nevertheless, there will need to be some serious restructuring for Social Security (i.e. significantly increasing taxes, and/or a bailout, or increasing the retirement age AGAIN)....or the US needs to get rid of it and maybe replace it with a Universal retirement plan?  Which would perhaps lead us to financial ruin.