Retirement Blues: Current Financial Crisis Forces Billions to be Pulled From Pension Plans
For everyone who has a pension plan, last year was one of the worst financial years. The crisis sucked more that $5 trillion from retirement plans that are company-oriented. This affected markets in the United States, as well as in Japan, the UK and The Netherlands. Due to the plunging stock market, there was a decline of 19% among worldwide assets. The only country that saw an increase in value was Germany.
United States pension plans were hit hard. These plans account for more than 60% of all global pension assets. The crisis resulted in company pension funds being under-funded by over $400 billion at the end of the year in 2008. Retirement accounts in the U.S. were declined by $2 trillion.
These massive losses have forced individuals planning to retire to adjust their retirement savings plans as well as their IRA & retirement plan investing. In many cases, people have completely stopped all traditional IRA and 401(k) plan contributions ? some have completely went overboard by terminating their 401k plan all together. This will result in people having to work longer than they expected and may even force many to adjust their current lifestyles. These losses have severely affected the lives of people who had been relying on their retirement plan as a source of income. For example, the largest pension fund on Colorado lost $11 billion, more than 25% of its assets. The state pension fund in North Carolina lost 17% in value. Despite these huge losses, there are some companies who have found a way to increase the salary of CEO?s, even though those same companies have slashed their pensions to other employees.
Losses of Pensions Will Have Enormous Effects
For anyone who has a retirement plan, these losses will be very painful. It will have an effect on almost every household in the U.S., especially for those who have also watched the value of their home depreciate or who have lost their jobs. The crisis does not only affect individuals, it will also play a part in corporate earnings.
Company-sponsored pension plans are becoming rare. More and more companies would rather place the liability and cost of retirement savings onto the employees. At one point, pension plans were a key part of the benefit package offered by a company. Now, they are becoming scarce. Instead, companies are offering 401k retirement plans. These plans still allow the employee to save for retirement, but the employee has to make contributions out of their pay check. For some, 401k plans were not the right choice. Many employees turned to a traditional IRA or a Roth IRA to help with retirement savings.
At the end of 2007, company pension plans were over-funded. By the end of 2008, after the financial crisis, these same plans were severely under-funded. This swing of over $400 billion resulted in only 75% of U.S. pension plans being funded.
When the stock market crashed, companies were faced with choices. They had to decide how to cut costs by taking the cash out of the business itself, or by decreasing the amount being placed into pension plans. The results of these decisions are having a huge impact on employees around the country who were trying to save for their retirement.
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