Tom Explains how Funding Retirement has Shifted from Companies to Individuals
Transcript:
Katie Nealis: Why did companies stop funding pensions for workers?
Tom Vaughan: Oh, yeah. So you know, even in this valley, if you came here and work at Lockheed, or General Electric or IBM, you know, they had pensions and you would go and you know, work and basically the company was putting money into the pension for you, you retire, you would get what essentially, is Social Security, you get a payment easily for life, you could have some of it go to your spouse, or all over that your spouse, depending on which option you picked, you know, if something happens to you, and those have all disappeared from private companies, and what you know, you still get that if you’re, you know, working postal service or fire police, you know, teachers, those there still have pensions for those particular arenas. But the private company pensions have disappeared.
The reason that this disappeared is pretty basic, I mean, people are living a lot longer than expected. So they have this amount of money that they’re putting into this pension, expecting people to live a certain amount of time. And they’re living longer, and the pensions are really struggling. And they’re having to be continuously refunded with dollars out of these companies. And they just don’t like that. I mean, it actually affects their earnings. These are public companies. And so what they have done is they shifted in, and they’re now putting money in on a match basis. And some of the matches are really aggressive and amazing. But you put X amount in to your 401k. And the company will match a certain percentage of that or all of it or depending on what what the company’s rules are. And so now we’re starting to see big 401 K’s that are now you know, replacing the pension. The big problem is not everybody does a 401k.
So, if you worked at IBM, you had a pension, you got a pension, no matter what if you work at IBM, now, you get a 401k match. If you don’t do the 401k you can have some trouble when your retirement so that that’s kind of shifted, you know, the responsibility of the retirement from the company to the individual, so, but it’s just monetary. There’s an awful lot of pensions that are kind of underwater, where they have so much money going out, because everybody’s living longer than expected. So which is a good thing, but if you’re a pension you know, administrator can be a bit a bit of a challenge.