Traditional pensions are disappearing in America, and the federal government just made it easier for employers to get rid of them.
With no fanfare in early March, the Treasury Department issued a notice that allows employers to buy out current retirees from their pensions with a one-time lump sum payment. The decision reverses Obama-era guidance, issued in 2015, that had effectively banned the practice after officials determined that lump-sum payments often shortchanged seniors.
Now, advocates for the elderly worry that millions of people receiving monthly pension checks could be at risk.
"Permitting plans — for their own financial benefit — to replace joint and survivor or other annuities with lump-sum payments will reduce the retirement security of both workers and their spouses," AARP Legislative Counsel David Certner said.
Since the 1980s, employers have shifted away from offering defined-benefit pensions, which provide a guaranteed monthly income for as long as someone lives in retirement. Instead,employers now favor 401(k) accounts, a finite pot of money that becomes available at age 59.5.
Pensions, which are insured by the federal Pension Benefit Guaranty Corporation in case employers go bankrupt, still cover 26.2 million people across 23,400 single-employer plans. But that number has been shrinking faster than it would naturally as companies close their plans to new hires.