Beginning in the 1980’s there was a fundamental shift from defined benefit (pension plan) to the defined contribution (401k) plan. Companies found the defined benefit plan expensive with unpredictable cash flows. By terminating their company defined benefit plan and adopting a defined contribution plan companies transferred the cost and risk to the employees.
This shift left the employees with a task they were and are unprepared for and in most cases unwilling to assume. They were forced to become their own actuary, investment advisor, budget analyst, portfolio designer and on and on. Left unchecked most employees are ill prepared to retire. The latest statistics show over 80% of employees are NOT on track to successfully retire.
The solution must come from Main Street rather than Wall Street. The next generation defined contribution plan must satisfy the goals of the employer while providing employees with a simplified approach to investing for retirement. This solution must continue to allow employees a choice and at the same time must provide a meaningful benefit.
- Should employers be bothered about their pensioners? (henrytapper.com)
- Social Security for Beginners (baselinescenario.com)
- Will a pension overhaul save your retirement? (financialpost.com)