Last year, Southwest Airlines pilots approved a new contract under which pilots earned a substantial pay increase: a 50% salary increase over the life of the five-year contract. The airline’s 11,000 pilots reportedly were negotiating not just for better pay, but also for improved retirement benefits and disability insurance along with a revised scheduling process.
Little did we know that the pilots were successful in improving their retirement benefits by negotiating a key new benefit that includes life income: a cash balance pension plan.
As reported by Pensions & Investments, this new market-based cash balance plan began last August under the new contract. The airline now contributes 1% of a pilot’s wages to the new pension plan, with the contribution increasing to 2% in 2026. This cash balance pension plan provides pilots who have maximized their 401(k) accounts an avenue to save more, at a time when more and more Americans aren’t financially prepared for retirement.
In The U.S. And Abroad, Employers Are Rethinking Pensions
Southwest wasn’t alone in its move to offer pensions to its workers, a benefit that once dominated the U.S. retirement landscape. In Canada, more than 1,300 employees at the General Motors’ assembly plant in Ontario will transition to a pension plan. Employees hired on or after September 17, 2013, currently participating in the defined contribution plan, will be enrolled in the Colleges of Applied Arts and Technology’s (CAAT) DBplus pension plan. Importantly, this GM contract largely follows the recent agreement Unifor reached with Ford Motor Company for its Canadian workers and new hires who are transitioning to a new pension plan this month.
Here in the U.S., IBM shocked the retirement world in 2023 by announcing it would reopen its defined benefit pension plan that it had “frozen” more than 15 years ago. Equally jaw dropping was the company’s announcement that it would stop making contributions into employee 401(k) accounts, retirement accounts that largely have replaced pensions for private sector workers.
As for U.S. public sector employers, the city of Jacksonville, Florida, moved to again offer pensions to those in public safety jobs to improve retention. Pension coverage was expanded for public safety workers in Michigan, again in an attempt to reduce turnover and address worker shortages. And in 2023, the town council in Trumbull, Connecticut, unanimously voted to resume pensions for its police officers to address worrisome staffing shortages following the switch a decade before to defined contribution accounts.
Of course, some recent efforts to bring back pensions haven’t been successful. As part of its negotiations with Ford Motor Company in the U.S., the United Auto Workers pushed for but weren’t able to restore pension plans for workers hired after 2007. And last year, employee anger over losing their pensions was at the heart of negotiations between Boeing and its machinist workers. The negotiations ultimately did yield a big bump in 401(k) plan contributions, but at a level that some experts say is substantially more costly to Boeing than bringing back pensions.
It’s important to note that some of these new pension plans are structured quite differently from pensions of the past, such that employers and employees now both share risk. “Traditional” pensions and 401(k)s have be structured with all risks either on the employer or worker. Today, many of the new pensions are innovative in that they provide a middle-ground in terms of risk while still offering a lifetime retirement income option that is so important to workers.
At A Time Of Economic Anxiety, Focusing On Retirement And Pensions Makes Good Sense
In the midst of these retirement benefit developments, it’s clear from the 2024 election results that Americans are troubled about the economy and their personal finances. The myriad election postmortems are clear that the deep economic concerns of working class Americans were a driving factor in how Americans voted.
For example, data show that voters in the two key swing states, Pennsylvania and Michigan, made their presidential candidate decisions based on economic worries. And even before the election, polling showed that for retired voters — many who rely on Social Security income and savings to afford the cost of living — inflation and the economy loomed large as they went to the polls.
Specific to economic concerns about retirement, research shows Americans are united in their retirement anxiety. Recent National Institute on Retirement Security polling found that across party lines, an overwhelming number of Americans agree that the nation faces a retirement crisis, with Republicans reporting this sentiment at a slightly higher level (81%) than Democrats (78%) and Independents (79%). This research also found:
- Americans hold pensions in very high favor across party lines.
- There’s bipartisan consensus that the disappearance of pensions is making it harder to achieve the American Dream.
- Democrats, Republicans, and Independents support Social Security and want action now to protect benefits.
Another important development is that many states are continuing to take action to address the significant number of workers who lack workplace retirement plans. Nationally, nearly half of the private sector workforce — a whopping 56 million employees — doesn’t have retirement benefits at their workplaces. Research indicates that workers are 15 times more likely to save for retirement if they can set aside money through payroll deductions. So clearly, this lack of retirement plan coverage severely impairs workers’ ability to prepare for retirement. To address this issue, 20 states as of December 2024 have set up state-facilitated retirement programs focused on helping workers without employer-provided plans save for retirement. These state programs continue to grow in popularity and size, already amassing more than $1.88 billion in assets as of November 2024.
Employees, Employers, And The Economy Benefit From Strong Retirement Offerings
As incoming Congressional and Administration officials plan their policy agenda for 2025 and beyond, it’s clear that focusing on improving retirement outcomes for working class Americans is a policy and political win-win. And equally important is the fact that shoring up retirement will benefit not just workers, but employers and the broader economy, especially in rural areas.
Research is clear that middle and lower income workers have a better shot at a secure retirement when they have a pension supplemented by individual 401(k) savings and Social Security — the so-called three-legged retirement stool. It’s also a fact that retirement benefits play a critical role in attracting and keeping workers, which is increasingly important to employers given the chronic labor shortage in the U.S.
And then there’s the economic benefits of retirement benefits, particularly pension plans. New research finds that retiree spending of public and private sector pension benefits in 2022 generated $1.5 trillion in total economic output, supporting 7.1 million jobs across the nation.
Beyond these advantages, experts note that it can be a smart business move for employers to offer pension if workers understand the value. A recent JP Morgan Asset Management report makes the case that there’s a “collective blind spot” when it comes to the value pensions provide to corporate plan sponsors. In Pension Defrost: Is it time to Reopen DB Pension Plans—Or at Least Stop Closing and Freezing Them?, JP Morgan analysts indicate that pension plans can actually enhance corporate finance. Indeed, other research finds that pensions are a far more efficient means of financing retirement, offering substantial cost advantages over 401(k) defined contribution plans.
So What Does This All Mean For 2025?
Unfortunately, I don’t have an economic crystal ball. But with the broad swath of Americans feeling frustrated about their finances and the high cost of living, we very well could see continued momentum to address the retirement savings shortfall.
Certainly, it will be important to closely watch the moves of employers and policymakers on retirement. It seems like an opportune time to seek pragmatic ways to ease Americans’ retirement anxiety — expanding access to retirement plans for all workers, making it easier for employers to offer pensions, and finally acting to shore up financing to Social Security as it remains the cornerstone of our retirement infrastructure. The willingness of workers to negotiate earnestly for robust retirement benefits, whether with Southwest Airlines, Boeing, or the Big Three automakers, indicates that working Americans would respond favorably to positive moves that would strengthen their financial security in retirement.
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