Vermont Employee Retirement Benefits: 3. Comparison to Private Sector Retirement Plans

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Private sector defined benefit pension plans are going the way of the dodo bird.

In 2015, only 20% of the Fortune 500 companies offered defined benefit plans to new employees, down from 48% in 2005. Of these, only 24 companies, or just 5%, offered traditional final salary schemes.

Most are hybrid plans combined with savings plans. 80% of Fortune 500 companies offer only defined contribution plans to new employees.

Sadly, the current generation of workers is looking at a much riskier retirement than their parents.

In the average Fortune 500 defined contribution plan, employers contribute 2% of gross pay and match a further 4.3%, so an employee electing to contribute 4.3% of pay will save 10.6% of gross pay annually.

How much this will be worth at retirement is completely dependent on the investment decisions made by the employee over the life of his or her career.

Even the federal government now has a hybrid retirement plan consisting of Social Security, a tax advantaged retirement savings plan and a smaller defined benefit plan component.

Unfortunately, the same trends are present with respect to corporate retiree health coverage.

According to a study conducted by the J Henry Kaiser Family Foundation, only 23% of companies with 200 or more employees now provide retiree health insurance programs, down from 66% in 1988.

Medicare does not cover 100% of health care costs, so a growing number of people will either have to buy their own supplemental insurance or simply go at risk. Anyone retiring before the age of 65 will need to purchase their own health insurance coverage.

 

 

 

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