An Accident Waiting To Happen?ByRaymond D. Matkowsky
Recently, unionized workers and a well-known international Company settled a weeks long strike. One of the union’s demands, which they did not get, was a return to the pension rules that they gave up ten years ago in favor of a 401(k). Like many, they now realized that a 401(k) was not a satisfactory replacement and many of the benefits were over-blown. Only 3% of retires reached their minimum cash requirements needed for retirement.
The company refused to negotiate saying it was “too expensive.” But, was it? Were the negotiators “shooting from the hip?” They certainly did not look into the history of pensions or the history of the 401(k). They also did not look closely at company’s present troubles
401(k)
Let’s take a look at the history behind the 401(k). Section 401 is a portion of the Revenue Act of 1978 which was intended by law makers to limit companies creating tax advantaged profit sharing plans that mostly benefited executives. The law was never written with the intention of replacing pensions. Businessman Ted Benna made a novel interpretation of the language and the 401(k) was taken on. The rest is “monkey see, monkey do.”
Pensions
Pensions were invented by Canadian Railroad executives as a means to entice older workers to retire. The railroad was paying large claims for mistakes these workers were making. These claims got to be so extensive that neither insurance nor the company was willing to cover.
Stress and Age
The general public does not know if the mentioned organization has an age related problem. The only ones that know, if they even looked for it, are the company executives. However, there are similarities to those experienced by the Canadians.
Age is taken into consideration with many high stress occupations. For example, commercial flight controllers are required to retire at 56. Up until 2007, commercial pilots were required to retire at age 60. Because of a conflict between two laws, the U.S. Congress reached a compromise of 65. The pilots union wanted this age raised to 67, but Congress refused. They stated that there is a difference in passing tests in a doctor’s office and the stress of an airliner where the pilot can be responsible for upwards of 300 people.
Alternatives Needed
I am not hawking pensions. According to the U.S. Internal Revenue Service, the average small business has three employees and a profit of about US$150,000. This is certainly not enough to pay for a pension. I am warning my fellow business leaders that the demands will be more frequent and they must be ready to tackle the 401(k) problem.
If the problem gets too bad the federal government will get involved and make businesses pay. This could be costly and you would not want that. Let me remind you companies don’t vote. Everyday people vote.
If a pension is too expensive, come up with an alternative to entice workers to retire. Do this before your workers make a costly error or the government steps in and mandates changes.
If you have any comments, let us know. Email me at rdm@datastats.com. We will try to print it in our next newsletter.
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