Return of Traditional Pension, Use of Hybrid Structures Touted in Media

Return of Traditional Pension, Use of Hybrid Structures Touted in Media


By David Brandolph

Lately, private-sector traditional defined benefit plan pension plans have been getting some well-deserved attention in the media. Articles in the New York Times and Wall Street Journal have been reenforcing what we already knew–that American workers value the guaranteed lifetime income offered by traditional defined benefit plan pensions.

But these articles also describe some important new twists—that companies, for several reasons, are considering restoring existing frozen pensions or adding new plans that complement existing 401(k) and other defined contribution plans.

Why are companies now thinking about revisiting pensions? The media outlets differ somewhat in their explanations.

The NYT’s focus, in its Nov. 24 article by reporter Martha C. White, was that employers want to better attract and retain quality workers. The WSJ, in its Nov. 3 article by columnist Telis Demos, gave greater weight for the move back to corporate pensions, to the extent that it exists, to the fact that higher interest rates have made pensions cheaper for companies to offer and more cost effective compared to other retirement plan structures.

This media attention comes on the heels of the United Auto Workers union’s recently settled strike against the top three U.S. auto makers. Although the union was unsuccessful in its demand for the reopening of pensions for workers hired after late 2007, the NYT said that benefits professionals took notice of the union’s bold demands. Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute told White that such demands weren’t “really something you would have seen 10 years ago.”

And union members aren’t the only ones seeking the income security of pensions.

According to the NYT, more job seekers are looking for employers that offer enhanced benefits, such as pensions. “The jobs platform Indeed found that over the past three years, people looking for work have increased searches for pensions by roughly 12 percent,” the newspaper said.

As further evidence of the value that workers place on pensions, the NYT described a 2020 report by the National Institute on Retirement Security, which found “that more than four out of five millennials working in the public sector cited pensions as a key reason for staying in their jobs.”

What’s fueling this desire for pensions? Workers are increasingly dissatisfied with the shortcomings of 401(k)-type plans that require do-it-yourself investing.

Josh Cohen, head of client solutions for PGIM DC Solutions, a division of Prudential Financial, told the NYT that “Many American workers are seeing that it’s a lot harder to have those accounts [401(k) plans] work.” He added that this difficulty is “heightened with market volatility, inflation and increased longevity.”

The WSJ said that many workers approaching retirement aren’t financially prepared and should be coveting the income security that pensions offer. It cited the Federal Reserve Board’s Survey of Consumer Finances, which found that the “median value of retirement accounts for people 55 to 64 was just $185,000 as of 2022.”

Some companies are responding favorably to the desire among employees for pensions. They are seeing defined benefit plans as a means to attract and retain quality workers, the NYT said.

Both newspapers, however, quoted benefits consultants who agreed that defined benefit plans were unlikely to return to their heyday—offering benefits based on highest average pay to career employees. Instead, they said that employers will consider offering hybrid retirement packages that include both defined benefit and defined contribution plan elements.

The Pension Rights Center has a great interest in analyzing these new types of hybrids, which take the best features of defined benefit plans and some aspects of 401(k)s – as well as looking at different forms of simplified defined benefit plans.

We are hopeful that all the recent media attention signals good news for the retirement income prospects of future generations of workers.

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