There is a widely held perception that we once had a wonderful retirement system that is now all messed up. Do you agree with this perception?

Ted Benna responds,

No I don’t agree. The private retirement system was far from perfect years ago even for employees who had traditional pension plans. My first job was in the home office of an insurance company. They had a traditional pension plan. You had to be age 30 to become a participant if you were a male and age 35 if you were a female. You did not earn a vested pension unless you stayed with the company until age 60!!

This tough vesting requirement was typical. So employers also either fired or pressured employees to leave as they approached the point when they would earn a vested pension. In addition, when employers went out of business, retirees and employees received only the benefits that could be provided by plan assets. The Pension Benefit Guarantee Corporation didn’t exist. A total loss or a major benefit reduction was the norm for severely underfunded plans.

Smaller employers tended to have employer funded profit sharing plans or no plan at all. A few employers regularly contributed between 10 and 15% of an employee’s compensation to such a plan; however, most employers contributed less than 5% of compensation – far less than what was needed to provide enough for retirement.

Employees who spent most of their careers working for an employer that had a good pension plan and retired from that employer did well. Most other employees had to depend on Social Security, personal savings and continuing employment.