These days, very few people get guaranteed pensions and they are almost always 401ks instead.
If you are running a business, isn’t it cheaper to provide pensions? You can invest the money in the same sort of funds that a 401k is invested in, but money not paid out (say, both retiree and spouse die) can be pocketed where 401k goes to whoever is a beneficiary like kids, extended family, charities, pets, etc).
In: Economics
Unless I’m missing something, how is a pension cheaper for the employer?
With a pension, the employer must guarantee certain payment upon the employee retiring and set aside funds, the employee generally does not often contribute to this fund and pockets their entire paycheck, minus taxes of course. This was also liability for employers in a market downturn.
With a 401k, employees must fund their retirement themselves by deducting from their paychecks, with employers only sometimes contributing a small portion as a match. It’s up to you to invest properly, if you buy stupid assets and lose on your position, well, that’s your fault and your employer isn’t liable.
Pensions have largely been discounted because number one, they’re more expensive for employers, and number two, employees began to prefer the flexibility and control of their own retirements. I know I don’t want my retirement hanging on the promise of a fund managed by people who I know nothing about purchasing assets that I don’t know of. Wall Street called pension funds dumb money because most of these asset managers had no experience in investing.
To summarize, 401ks became more popular for both employees and employers since they are cheaper for employers, and offer more flexibility, control and accountability for employees.
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