The announcement last week by Verizon Communications that it was freezing (a kinder word for terminating) the defined benefit plans of 50,000 of its managers was yet another grim reminder that good old-fashioned retirement security is becoming as outdated as a telephone with a dial.
The company also said it would trim back the amount it would contribute to these employees’ health benefits when they retire.
The reason for these cutback moves is one that is becoming depressingly familiar in corporate America and goes something like this–”we can’t compete with companies that don’t offer these benefits packages.”
And since Verizon is the second largest telephone company in the country, where it goes, others in telecommunications are pretty sure to follow.
It makes you wonder how long it will be before the defined benefit pension plan gets its own exhibition niche at the Smithsonian Institute as a once-dominant factor in American business that has faded away under pressure.
Pretty much taking the place of these soon-to-be-defunct defined benefit plans at Verizon is the current embodiment of retirement salvation for millions and millions of Americans–the 401(k) plan. And, indeed, Verizon said it intends to strengthen to a degree the 401(k)s of these managers and, presumably, others going forward.
In freezing these defined benefit plans Verizon is being pretty up and up–all the benefits that have accrued to the managers will be theirs, but the company will make no further contributions to the plans after a certain date. This is an entirely different story than those companies (usually in bankruptcy) that have terminated their pension plans (and the employees’ retirement dreams with them).
Pretty soon, when the defined benefit plan disappears entirely, it won’t be a question any longer that employees are not going to get what they were promised. There simply won’t be any promises.
The 401(k), after all, is merely a mechanism, not a promise. And it’s a mechanism that depends on being serviced (so to speak) by owners who are not particularly proficient in investing know-how, if innumerable surveys are to be believed.
Perhaps I find this whole no-promise idea scary because I am from a generation where promises were given and still meant something (even in the business world and in government). So, I still believe in Social Security, for instance.
Perhaps it will be different (and less scary) for generations like my daughter’s who will enter the work force and not have anything promised to them except the right to accumulate on their own whatever they will need for their retirement years.
But I think that even future generations will want to have some kind of promise or guarantee in their own lives. Some idea of how much they definitely can count on when the paychecks stop.
The life insurance business knows how to make promises and knows how to keep them. What it needs to do is convince the American public that its products are the ones that are more capable of guaranteeing a lifetime income than anyone else’s.
The industry is starting to deliver that message, but the decibel level needs to be raised. Otherwise it could very well find a niche reserved for it in the Smithsonian.
Pretty soon, when the defined benefit plan disappears entirely, it won’t be a question any longer that employees are not going to get what they were promised. There simply won’t be any promises.”