Trend Watch: Pension Popularity

Recently, we caught an employment law blog bemoaning the heightened difficulties of managing employee benefits. Into the brave new world of post Secure Act 2.0 benefit administration comes new and challenging accommodation requests for things such as mental health and long COVID-related illnesses, which may create confusion over balancing and discrimination testing a plan. So, we can only imagine the dismay some benefits advisors may have over news noting an increase in the favorability of pensions. The Wall Street journal reported that some companies that continue to struggle with recruitment or retention may see pensions as a potential tool. Conversely, Axios reported that industrial giant 3M had frozen its pension as of 2028.^[1]
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Asset management advisors from J.P. Morgan have posited that plan sponsors should avoid the “blind spot” of pensions when it comes to benefits programs.^[2] The dire straits of nearly half of Americans seems to be leading the charge for a return to pensions: 50% of those polled still feel they can’t save for retirement and seek a source of steady income to fund retirement.
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New data from the Center for Retirement Research shows a continuing gap between investor’s needs for steady income and the available options. The CRR polled financial advisors about their habits concerning annuities and recommendations. It found that the majority of those professionals do not recommend annuities based on a concern that their clients would outspend the savings.^[3] A new survey asked financial professionals about the value of Adding to this, increases in non-stock sources of funding for pensions, such as bonds, may make pensions less of a drag on a business’s books.^[4] In fact, many pension plans are currently overfunded in terms of their obligations.
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But the analysts favoring pension plans may be missing an essential element: pension plans can be harder to administer. In general, pension plans have stricter rules concerning withdrawals and usually do not provide an employee with an option for taking a loan against their retirement. Pension plan sponsors also have increasingly been sued over the accuracy of the actuarial tables and other standards they use to determine benefits for their participants.^[5] Suggesting a return to pensions when their stricter rules run counter to the relaxation and expansion of them were among the most celebrated changes made by the SECURE 2.0 Act. Another element that could potentially make pensions harder to administer could be that employees have much less input into the funds into which the pensions invest. This too could lead to an increase in lawsuits brought by plan participants. Managing the paperwork and inquiries that go along with litigation could increase the cost and work of administering the plan.
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In sum, plan sponsors may need to preemptively educate some analysts and recruitment professionals on the downsides of pensions. Plan Sponsors may also want to increase the financial literacy of their participants concerning annuities, especially for those plans that have included annuities in their plan portfolios.

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^[1] https://www.axios.com/2024/01/09/pensions-retirement-401k-3m-freeze

^[2] https://www.axios.com/2024/01/09/pensions-retirement-401k-3m-freeze

^[3] https://crr.bc.edu/do-financial-professionals-recommend-annuities

^[4] https://www.axios.com/2024/01/09/pensions-retirement-401k-3m-freeze

^[5] https://www.plansponsor.com/pension-plans-of-kellogg-kohler-and-fedex-sued-for-outdated-calculations

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‍These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.