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United States Is Moving Away From Defined Benefit Plans and It Can't Happen Fast Enough

picture of four window washers working high above the street on a skyscraper building. Each hanging by a rope only.

 I have one word for defined benefit plans -  "Enron", “Detroit”, and "good riddance". Ok, maybe that’s three, or four words, but who’s counting? The fact remains that the current trend of moving away from defined benefit plans is a good thing just about any way you slice it from my seat.

Some may claim that defined benefits encourage loyalty and stability for employees, but that’s only in theory. In practice, the economy changes, businesses fail, and nothing remains the same regardless of how much we want it to. Believing nothing can change during one’s career is filled with much more peril than one can imagine.

I don’t buy into the loyalty concept of having a long-term vesting period. As an employer, do you want someone clocking in the time because they feel trapped, or would you rather make room for someone who wants to be there and is thankful to be there?

Plus, I don’t think the added stress and inequality that often accompanies defined benefit plans helps to retain quality staff. Take a friend of the family for example…

She works for the county and is on her 25th year. The county requires (currently) that one must have 15 years of service and be 55 in order to retire. As you can imagine, she is now knows others that started after her able to retire with full retirement AND collect a previous retirement package from a previous employer (think retired military).

It gets better because the county is about to cut retirement benefits, and she may not be able to retire at 55 with over 30 years of service in. Obviously retiring at 55 isn’t typical, but it was a perk to entice her to accept the position. Fast forward 25 years and now she is “stuck” (she loves her job, so that helps).

With a defined contribution plan, her retirement dollars would be in her control, and she could leave her job without penalty.  One of the smartest business people I know offers anyone offered a job $2000 if they DON”T take the job. He says if they’re willing to give it up for $2000, they’re not dedicated and it will cost more to replace them later. A well-known chain will pay people when they leave for pretty much the same reason. It cost more to keep a trapped person, than it is to have the right person, in my opinion.

Bottom line, I think the impact from the trend is positive for both employees and employers.

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