When 64 percent of Boeing machinists voted to continue their strike this week, many of them had in mind a goal rarely seen this century: the return of a traditional defined-benefit pension.
That retirement option was already rare in the private sector when Boeing ended its pension plan for the machinists a decade ago. These days at U.S. companies, worker-driven savings accounts like 401(k)s have mostly replaced pension plans that provide fixed monthly payments to retirees.
“For defined-benefit pensions to become an issue, both in the autoworkers’ strike and in Boeing’s, it shows there is something in the air, that people long for these old-fashioned pension plans. And I find it surprising,” said Alicia Munnell, the director of the Center for Retirement Research at Boston College, who pointed out that the autoworkers eventually ended their strike without resuming a pension plan.
Congress created 401(k)s in 1978, allowing companies to contribute a set amount to employees’ individual accounts each month and let the workers invest the money as they choose. Since then, those and other defined-contribution plans have become much more common than defined-benefit plans in the private sector, although state and local government jobs are more likely to offer traditional pensions.
The heyday of pensions began in the 1950s, when unions were at the peak of their power and employers enticed workers in the booming postwar economy to stick with a company job. By the ’60s and continuing into the ’80s, more than 40 percent of private-sector workers had a pension.
The 401(k) was first introduced as a way to offer more workers access to some sort of retirement plan. In 1990, 43 percent of private-sector workers still had a pension, down just three points from a decade earlier - and an additional 12.5 percent had a defined-contribution account such as a 401(k), but no pension.
Traditional pensions disappeared as regulations on them tightened - and as employers realized that ending those programs would take unpredictable costs off their books. By 2006, pensions had collapsed: Just 20 percent of private-sector workers had one. Today, the number stands at 15 percent, the same level of a century ago.
Proponents of defined-contribution programs say they have advantages over pensions for workers, not just employers.
Plans such as 401(k)s and IRAs give workers more control over their retirement investments. And a defined monthly benefit becomes less valuable in real terms in a period of high inflation, Munnell noted.
“When you have a defined-benefit plan, you just sit there and you’ve got your $100 a month, and that number does not change,” she said. “But what you can buy with that $100 a month does change.”
Moreover, pensions favor workers spending their whole careers at one company. In today’s economy, workers might change jobs numerous times, often improving their salaries along the way; the decline in pensions was one cause of that shift.
“When you look at young graduates from colleges these days, the data I’ve seen suggests they’ll change their jobs 10 or 11 times over the course of a lifetime,” said Michael Graetz, an emeritus law professor at Columbia University. “That’s not the way it was in the 1950s. … One of the selling points of a defined-contribution plan was you got to take it with you. With a defined-benefit plan, you might lose your benefit.”
But many experts say the change to 401(k) plans left millions of people facing more precarious retirements and worsened racial gaps in financial stability.
The distribution of defined-contribution accounts generally reflects inequality in the United States. Rich people are far more likely to have the accounts than poor people. White people are more than twice as likely to have one than Hispanic people and substantially more likely to have one than Black people. People with more education have the accounts more often.
Pensions, on the other hand, are much more evenly distributed, and the shift away from them has helped accelerate U.S. inequality. In 2013, almost 75 percent of Hispanic families, 60 percent of Black families and 35 percent of White families had no retirement savings, the Economic Policy Institute found.
And many people who do have retirement accounts have been unlucky or unsavvy investors.
A 2010 study for the National Bureau of Economic Research that examined 1 million retirement accounts found that workers made poor investment choices that reduced their potential savings by one-fifth. A 2016 University of California at Berkeley study involving the state’s public school teachers concluded that 6 out of 7 would have substantially less money in retirement if they had a 401(k) instead of a pension.
One rare large U.S. company that recently returned to a defined-benefit program was IBM, which did it largely for accounting purposes that would not apply to most large corporations. Experts are closely watching to see whether Boeing will consider bringing back its pension, but Graetz sees the aerospace giant as an outlier, with a strong union and few competitors that employ workers with the same specialized skills as airplane machinists.
“If the Boeing workers were to succeed in getting a defined-benefit pension, I certainly wouldn’t take that as a signal that defined-benefit pensions are on their way back,” he said.
