Attention FAE Customers:
Please be aware that NASBA credits are awarded based on whether the events are webcast or in-person, as well as on the number of CPE credits.
Please check the event registration page to see if NASBA credits are being awarded for the programs you select.

Want to save this page for later?

NextGen Magazine


Younger Workers Seek Pensions, and Employers Are Increasingly Offering Them

S.J. Steinhardt
Published Date:
Nov 27, 2023

iStock-655781780 Retirement Nest Egg Pension

Pensions are making a comeback, The New York Times reported.

Only about one in 10 Americans who work in the private sector participates in a defined-benefit pension plan, while approximately half contribute to 401(k)-type, defined-contribution plans, the Times reported. The drawbacks of defined-contribution plans are becoming more evident in the current economic climate as the assets are invested by employees themselves.

“Many American workers are seeing that it’s a lot harder to have those accounts work,” said Josh Cohen, head of client solutions for PGIM DC Solutions, a division of Prudential Financial, in an interview with the Times. “That’s heightened with market volatility, inflation and increased longevity.”

More job hunters are looking for the pension benefit, according to jobs platform Indeed, which found that over the past three years, people looking for work have increased searches for pensions by roughly 12 percent. Indeed also found that, while the number of job postings that mention pensions remains low, that figure rose by roughly 130 percent over the past three years.

In 2020, the National Institute on Retirement Security 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.

Twenty-seven-year-old Jessica Steinbach told the Times that the chance to take a job with a pension right out of college was a “crazy-amazing opportunity.” Steinbach works as an assistant naturalist for the parks department of Dutchess County, New York. She said that her parents had helped her see the long-term benefit of participating in a pension plan starting from a young age.

She said that seeing her parents get closer to retirement gave her a better long-term perspective. “Thirty years isn’t that long, and it snuck up on them, so it will sneak up on me,” she said of her parents. “It does feel slightly more stable to have the pension.”

In November, IBM announced a major change in the way it structures its retirement benefits. One of the first companies to offer a 401(k), in 1983, IBM will keep its 401(k) plan, but beginning next year, it will cancel matching contributions of up to 6 percent. Instead, it will contribute 5 percent of each worker’s pay into a defined-benefit instrument.

The company calls this a retirement benefit account. It is structured as a cash-balance account, in which the accrued value is expressed as a dollar amount. Its employees earn credit each year, generally a percentage of their salary plus an interest rate pegged to a benchmark, such as a particular Treasury yield.

These plans could be an advantage for those who don't currently contribute to a a retirement plan—usually, lower-paid workers, said Michael Archer, head of the retirement business for North America at benefits advisory firm WTW, in an interview with the Times.

“In defined-contribution plans, most require the employee to contribute to get a contribution from the employer, but the problem with that common approach is many employees that are lower paid or younger find it very difficult to make those contributions,” he said.

One disadvantage of pension plans is that they are structured to reward workers who spend their entire career with the same employer, something rarer than in past decades. Another is that the payments stop when the employee or the employee's spouse dies. Jared Gross, head of institutional portfolio strategy at J.P. Morgan Asset Management, co-wrote a paper this year that suggested that companies offer a hybrid retirement package that includes both defined-benefit and defined-contribution elements.

With young workers increasingly concerned about the reliability of Social Security and mounting government debt, they are looking at companies that offer a guaranteed return.

“Employees are starting to catch on to the fact that retirement is unpredictable and potentially very expensive,” Ned McGuire, a managing director at investment advisory firm Wilshire, told the Times. “If you’re a 20-year-old and you’re looking at your future life span, you don’t necessarily know that you’re going to collect a Social Security benefit at the same level that your parents are receiving,”