THE BIG DISAPPEARANCE WILL BE DEFINED-BENEFIT SOCIAL SECURITY

Meanwhile, as younger employees were demanding cash-type benefits - such as the 401(k) - the regulatory burden of the traditional pension plan kept growing. Waves of bankruptcies led to a growing PBGC deficit, resulting in higher funding obligations and higher PBGC premiums (soon to be at least $50 per head - $50,000 per year for a modest plan of 1,000 participants). Investors' focus on post-retirement promises kept growing. And statutory limits on pension benefits for highly compensated executives were repeatedly lowered, forcing them into non-qualified plans for the bulk of their post-retirement compensation, and leaving them less interested in the future of the tax-qualified pension plans covering the lower-paid workforce.

The result of all of these demographic, financial, and regulatory pressures was unsurprising: There was no downside to freezing the pension plan and replacing it with a 401(k) plan. There was, however, plenty of upside.

The change was good for investors and for executives. It simplified personnel administration, reduced administrative costs, and made recruiting new employees easier.

Is that good? Some say yes, some say no, but it's clear to me that the executives making these decisions are not the greedy, insensitive, overpaid bad guys portrayed in the popular press. In every case, in my experience, the decisions were painful, thoughtfully considered, and deemed to be essential to the ongoing health of the enterprise and better for the majority of employees.

More companies are now moving to automatic enrollment in their 401(k) plans, and to automatic escalation of contribution amounts, which has been an effective approach to increasing employee savings. Employees no longer stay with the same employer for their entire careers, and in a mobile-workforce environment, the traditional pension plan benefits very few. The 401(k) plan, with all its faults, has the advantage of benefiting many.

Those whose benefits are reduced because their pension plans terminated in bankruptcy at least have their guaranteed benefits. Before ERISA, they would have had nothing. Those who often change jobs are able to take their 401(k) account with them, so it is there when they need cash - unlike a traditional pension plan, which would provide little for a short-term worker. 

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