Companies are finding that pension plans are far too expensive to offer, despite the tax breaks, USA Today reports. Since the beginning of the year, at least 20 companies have frozen their pension plans; by comparison, that many companies did so throughout all of 2008.
Companies have plenty of reasons why they would eliminate pensions, namely: declining profits, high funding requirements, steep investment losses over the past year, and the fact that as competitors freeze pensions, it becomes less politically uncorrect to follow in their footsteps.
On top of this, younger workers incorrectly view 401(k) plans as a more attractive option than a guaranteed pension plan. One of the reasons for this phenomenon is the transparency of the value of a 401(k) plan, as opposed to a pension plan. Workers also like the portability of a 401(k).
The added bad news for American workers is that the average 401(k) lost 27% of its value in 2008. The market collapse has just proven how fundamentally flawed 401(k) plans are as a vehicle to provide retirement income, said Karen Friedman, policy director for the Pension Rights Center.