Think Progress reports that the Trump administration has changed Treasury Department policies to allow corporations to alter their pension arrangements. This move puts at risk the private sector retirement benefits earned by millions of Americans.
The change in policy allows businesses to give retirees a one-time payout, which would replace the monthly or yearly pension checks they receive now. Buyouts such as these are popular amongst older people who tend to underestimate their life expectancies. In the end, the one-time payments are often far less than what they would be given under their existing pensions.
“It’s not that people are greedy, it’s that they’re afraid,” Economic Policy Institute (EPI) retirement expert Monique Morrissey said. “And they have no way of evaluating this. They believe they’re being protected and they’re not.”
“It really is a rip-off for workers,” said Amy Traub, a researcher for liberal public policy think tank Demos. “There may be somebody out there who’s telling them they can manage the money far better than the old pension plan ever would have, but in practice that’s not true, and people run out of money quickly compared to the lifelong guarantee they had from their pensions.”
Companies are under increased pressure from shareholders to lower future costs, and lump-sum pensions will help that process.
In the past, businesses used a practical tactic when issuing pensions. Promising to take care of workers with pensions when they reach old age helps the firm recruit the most talented members of the field.
“It’s this old idea that when you give your life to work for an employer that employer will support you and your spouse in your old age,” Traub said. “[T]hat goes against the idea of companies being lean and mean, contracting out labor, relying on temporary labor and independent contractors, and minimizing any obligation to the people who make a company function every day.”
Over time, this social contract has been degraded, and pensions are now seen as an impediment to profits. Now, businesses are using a model which plans for long-term sustainability by balancing the interests of all stakeholders. This shift is known as “financialization.”
Unfortunately, companies aren’t using the money they free up by shorting on pensions productively. Instead, the investors who pressured for this initial change are given more money.
Retirees should be aware, the lump-sum offer robs them of much of their promised pension.