Everyone knows that retirement is an iffy proposition in the US. Americans either haven’t saved enough, don’t earn enough to salt away a nest egg, or will be faced with a broken Social Security system when we do retire.
There’s a solution for all that.
You could get a job at one of the companies that still offer defined-benefit pension plans. This is a fancy way to say that if you work for this company long enough–usually at least five years–they will pay you a certain amount every month for the rest of your life when you retire, normally after age 62.
Defined benefit plans, or pensions, have gone the way of the dinosaurs in much of corporate America, replaced by 401ks (pdf) which require you to save and invest for retirement on your own. Most companies that offer 401k plans “match” a small portion of what you put in. Even if you contribute the maximum allowed under federal tax laws and your company matches part of that, you’re still subject to the vagaries of things like the stock market. The risk is all yours.
But get a job at one of the places below and you’ll buy yourself a certain soothing security. These are the top 10 companies with the biggest defined benefit plans that are still taking new employees.
|Company||Total Defined Benefit Assets (billions)|
|Kaiser Foundation Health Plan Inc.||$23.39|
|Johnson & Johnson||$14.36|
|JPMorgan Chase & Co.||$14.02|
|Prudential Financial Inc.||$12.14|
|Consolidated Edison of New York||$11.89|
|Merck & Co. Inc.||$10.04|
|Eli Lilly & Co.||$7.16|
|Dominion Resources Inc.||$6.43|
|Source: Pensions & Investments (P&I)|
This list comes courtesy of Aaron M. Cunningham, director of research & analytics at Pensions & Investments, a unit of Crain Communications. About 30 million of the 113 million people working in private industry in the US are still covered by pension plans.
While many companies have been cutting pension costs by barring new employees from joining, about 60% of companies with pension plans let new employees participate as of 2012 (the latest year data was available), according to the Pension Benefit Guarantee Corporation (PDF), the US government entity that insures pension plans. That’s down from 72% in 2008.
Companies typically use a formula based on how long you were employed and your average or last years’ pay to calculate your pension at retirement. US companies by law vest pensions after five years of service and pay up to 1.8% of your salary per year of service, according to Christian Weller, a public policy professor at University of Massachusetts, Boston. So if you spent only five years at a company and earned an average of $100,000 a year, you’d get $9,000 a year when you retired. Most people spend more than five years with one employer, however.
If you worked at a company for 30 years and earned $100,000 on average during the final few years, and the company’s promise was to pay you annually during retirement 1.5% of that average salary multiplied by years employed, you would get $45,000 a year for the rest of your life. (Participants can sometimes elect to trade lower annual payments for lump sum payouts or survivor benefits for their spouses.)
Many US companies that pay pensions also offer 401k plans. JPMorgan Chase, for instance, pays retirees an annual pension and offers a 401k plan that matches their contributions, dollar-for-dollar, for up to 5% of their compensation. JPMorgan employees also have the option to take their pensions as a lump sum in cash rather than as monthly payments.
The financial crisis has bolstered people’s support for pensions. According to a 2015 telephone survey conducted by Greenwald & Associates for the National Institute on Retirement Security (NIRS), 82% of people in the US think a pension is worth having and 67% say they would take less pay to get a guaranteed income at retirement.
Weller says employers are less willing to offer pensions because federal regulations require companies to fund their pension obligations using ever-changing interest rate assumptions. That means from year to year, keeping the pension fund topped up can cost big employers billions. It’s certainly easier to foist responsibility for retirement saving on their employees.