An “onerous regulatory environment” and funding volatility have been the reasons why many private sector companies have shied away from providing pensions to their employees, new research states.

In a new brief, the National Institute on Retirement Security (NIRS) is postulating that private sector defined benefit plans have gone extinct due to the affects of previously enacted regulations, which date back to the 1970s.

“Since the 1970s, laws and regulations have created funding volatility for companies sponsoring pensions, rather than facilitating predictable costs that enable companies to effectively manage cash flows,” the Washington, D.C.-based non-for-profit said yesterday, while including the Pension Protection Act of 2006 as one of the many culprits.

Ilana Boivie, director of programs for NIRS and author of the research brief, “Who Killed the Private Sector DB Plan?,” highlighted that trending away from pensions to 401 (k) type plans is primarily due to “volatility and unpredictability of plan funding.”

"What's particularly interesting is that the research shows that the trend away from pensions is not driven by the costs of pensions,” Boivie stated. “Rather, pensions are highly efficient and can provide the same retirement benefit as an individual 401(k) type plan at half the cost.” 

If more “predictability and less volatility” were somehow put in place, she said that “some 26% of plan sponsors would consider forming a new pension plan.”

Presently, according to the organization’s findings, private sector pension coverage has dropped significantly. In 1975, coverage was at about 85%; it has declined to about 33% in 2005.

As a result, the NIRS recommended that policy changes could help to solve the apparent problem. Specifically, it stated that pension law should be changed to make funding less volatile. Also, laws should also “enable employees to share the cost of pensions by allowing pre-tax contributions to the plan,” pensions should be designed “so that they are portable when an employee changes jobs,” and options should also include “sponsorship of a pension plan.

“This retirement shortfall will have negative consequences for individuals, the U.S. economy, the job market, and governmental public assistance programs,” Diane Oakley, NIRS executive director said in the announcement. “…But, the good news is that there are ways to reverse the trend so that Americans again can have the reliability of pensions in retirement. It will, however, require leadership and commitment from policymakers to re-tool pensions in a way that works for 21st century employers and employees.”

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