Is It Time to Switch Back to Pension Plans?

Don’t Call It a Comeback

Corporate pensions have lost a lot of popularity after dominating the world of employer-sponsored retirement for decades. But maybe they’re due for a comeback thanks to the same high interest rates that have put pressure on consumers over the past years.

A difference between a pension plan and the popular, as well as tax-deferred, 401(k) retirement plan is that a pension is funded by the company, while a 401(k) is funded by employee paycheck deductions, as well as a potential company match.

Overfunded Funds

Thanks to the Federal Reserve’s policy over the past two years, interest rates are up, and in turn, bond yields have risen, too. On top of that, the stock market had a strong year in 2023, resulting in $15 billion in total gains for pension plans, according to estimates from actuarial firm Milliman.

That’s great news: Pension plans now have more money than they need to cover their future retirement liabilities, according to Milliman.

Worker Demands

In their contract negotiations last fall, General Motors (GM), Ford (F), and Jeep-parent Stellantis (S) denied the United Auto Workers union’s demands for pensions. Earlier this week, 3M (MMM) announced it would transition non-union U.S. employees to 401(k) plans in the next five years, suggesting many companies still prefer employee-funded retirement plans over pensions.

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