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Unions have asked for a restoration of defined-benefit retirement plans in recent strike negotiations, signaling a renewed appetite for pensions rather than the defined-contribution plans that have dominated the employer-sponsored retirement landscape for several decades. Boeing’s pension, which the company froze in 2014 in favor of a 410(k) retirement plan, was central to negotiations in last year’s machinists strike, according to an analysis by the Federal Reserve Bank of St. Louis. The report noted that the Boeing situation is not unique. The United Auto Workers (UAW) strike in 2023 also included compromises around pensions.
Since 1989, participation in defined-benefit retirement plans has fallen from about 60 percent of employees to about 20 percent, while defined-contribution plans have grown from about 55 percent of savers in employer-sponsored plans in 1989 to 80 percent today, according to the study. The decline in defined-benefit pension plan participation has been consistent across industries—except among public administration workers, who remain in pension plans at a higher rate than other workers because of the Federal Employees Retirement System, which offers federal employees both defined-benefit and defined-contribution options.
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The report said defined-contribution plans have become the favored vehicle for retirement savings among employers because they transfer risk to the employee and tend to be less expensive to manage. Employer contributions are a fixed expenditure each payroll cycle rather than a payout that lasts for an unpredictable amount of time. In addition, government regulations enhanced tax incentives for defined-contribution plans while increasing the cost of administering defined-benefit plans. And recent data suggests that defined-benefit (DB) plans aren’t as impactful on employee retention as once thought.
“Even as DB pensions have decreased in prevalence over time, mean job tenure increased from 1989 to 2001 and remained relatively constant between 2004 and 2022,” said the report. “If pensions were a strong retention incentive for employees, one would expect a mirroring decline in job tenure. However, as evident from the recent Boeing and UAW strikes, pensions are still widely valued by workers.”
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From: BenefitsPRO
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