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Where Did All the Pensions Go?

Henry Hebeler
Henry Hebeler is the author of Your Winning Retirement Plan.

David Laibson
David Laibson has taught economics at Harvard University since 1994.

Pensions used to be something many workers could count on to fund their retirement. As companies reevaluated the financial and legal obligations associated with pensions and American working habits have changed, the pension has all but rode into the sunset. Experts Henry Hebeler and David Laibson look at what happened to the pension.

Where did all the pensions go?
Henry Hebeler: If you go back thirty or forty years ago, most people who worked for big companies would get a pension. And that would provide about 60 percent of their retirement income and the other 40 percent would come from social security, and they didn't have to have hardly any savings, they counted heavily on the companies' pension for most of their retirement. As the years have gone by, companies have dropped pensions, and they've gone into private savings plans, so 401k or 403b – that's their way of telling people, "you have to rely on your savings." It's a much better deal for the company and it could be a much better deal for you if you really save. The problem is, people aren’t saving that kind of money.

David Laibson: Pensions are becoming a smaller and smaller fraction of the total savings in the U.S. economy, and there is a very good reason for that. American workers change jobs about every five years, so you can't rely on one firm that's going to be your corporate parent for forty years to provide retirement benefits. You're going to move from firm to firm to firm, and that's part of the dynamism and excitement about our economy, that's what makes our economy so efficient. So if we're moving from firm to firm, we need a pension system that can move with us, and that's why we’ve migrated by large from these old-style defined benefit pensions that stay at one firm, to build up as you live at that firm and that do not migrate with you, to a new defined contribution pension that you can take with you, that you can roll over to either a new firm or you can roll over to an IRA. So, we have these very portable new pension systems and they work fine, as long as people enroll in them.

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