The first pension plan was established in 1875 by the American Express Company. Pensions paid to workers were at the discretion of management. Imagine that in 2019?
By 1950 about 25% of (private sector) workers had a pension. By 1960 that number was about 50% and peaked in 1980 at about 60%. Today that number is between 18% and 33% … sort of. Good numbers are hard to find and vary greatly by source.
One study shows that 88% of private sector workers had a defined benefit pension in 1975, a number I seriously question.
According to the 2017 BLS Benefits Survey only 66% of private sector workers have access to any type of retirement plan, including a 401k plan. That means the defined benefit plan is much lower.
The point is that universal coverage in defined benefit pension plans was never the case and has been declining steadily for decades. Even the original pension leaders among S&P 500 companies have abandoned the traditional pension plan, a defined benefit plan, even taking anticipated (“promised”) future benefits from current workers. A despicable action in my opinion.
Why have pensions virtually disappeared? Too costly, too volatile, heavy regulation and administration and liabilities? All the preceding.
However, there is one other factor, a big one. Nobody hired today is going to work for the same employer for twenty or thirty or forty years (except maybe government workers) and hence a defined benefit pension has limited, even no value. Such pensions accrue benefits based on earnings and years of employment, typically giving higher value to earnings in the last ten or less years of service. Work for ten employers for four years each and you likely get zilch.
“According to the Bureau of Labor Statistics, the average worker currently holds ten different jobs before age forty, and this number is projected to grow. Forrester Research predicts that today’s youngest workers will hold twelve to fifteen jobs in their lifetime.” Source: LinkedIn
So, we need a new strategy. We need to recognize the faults in human nature when it comes to long-term planning, to managing money and when it comes to setting spending priorities.