The history of the pension plan in the United States dates back to 1875 when the American Express Company introduced the very first private pension plan for its employees. In these early pension plans retirees received a fixed monthly sum, fully funded by their employer, as explained by the Pension Benefit Guaranty Corporation (PBGC). However, it would take almost a century for the government to step in and provide some much-needed protections for this benefit.
A pivotal moment in the pension plan’s history occurred in 1963 when Studebaker, an automaker, faced financial turmoil and decided to terminate its pension plan, leaving over 4,000 workers in South Bend, Indiana, without retirement income. It wasn’t until four years later that New York Senator Jacob Javits introduced legislation to safeguard pensions. In 1974, Congress passed the Employee Retirement Income Security Act, signed into law by President Ford, marking a significant turning point for pension plans, according to the PBGC.
Fast forward to the 1980s, and around 60% of American workers had access to a pension plan, as reported by Motley Fool. However, the landscape has drastically changed, with only 14% having access to such plans by 2022.
So, what’s behind this shift? The answer may be straightforward: 401(k)s and other defined contribution plans have become more appealing to employers. These plans allow employers to provide matching contributions, supporting their employees’ retirement without the rollercoaster of the stock market.
While the pension plan may not be as widespread as it once was, some industries, such as education, government, utilities, and law enforcement, still keep the flame alive, according to US News and World Report.
The lesson here is that HR is ever-evolving, adapting to the needs and expectations of the workforce, and only time will tell if pensions will stage a comeback in corporate America.
