WHY ARE COMPANIES DOING THIS?
Pensions are costly for employers and most companies have scaled back or eliminated their pension plans in recent years. In 1998, 59% of the Fortune 500 companies offered a defined benefit plan to new hires. Fast forward twenty years, and just 14% of the Fortune 500 companies offered a defined benefit plan to new hires in 2019. The landscape for Retirees continues to change dramatically.
Pension plans are a huge expense for corporate America, and they have grown even more costly in recent years. Under the Pension Protection Act of 2006, a defined benefit plan must pay insurance premiums to the Pension Benefit Guaranty Corporation (PBGC) each year. The PBGC steps in to cover pension payments to Retirees when a pension plan fails. For 2021, the flat rate premium is $86.00 per plan participant but if a corporation’s pension Plan is underfunded, the Plan may also be required to pay an additional variable rate premium.