The Solution Retaining Employees Who Used to Say "I'm Quitting"... US Companies Are Rapidly Reviving It

US Companies Reviving Vanished Corporate Pensions
PECO Sees Its First Strike in 145 Years
“Cash Balance” Formula, With Defined Employer Costs, Holds the Key

US companies are reviving the once disappearing “lifetime pension” — all in an effort to retain their employees.

Photo for article understanding. Pixabay

On September 12 (local time), The Wall Street Journal (WSJ) reported that “IBM, meat processing giant JBS Foods, and major healthcare system Northwell Health in New York and Connecticut are reopening or launching new pension plans.” Unlike a 401(k), where employees set aside part of their salaries each month and their retirement funds fluctuate depending on investment performance, corporate pensions are fully funded by companies and guarantee a fixed amount for life after retirement. The structure is similar to Korea’s defined benefit (DB) retirement pension system.

The catalyst for the decline of such pensions was the 2008 financial crisis. With stock prices plummeting and new regulations requiring further funding, companies could not bear the financial burden. Many chose to freeze their pension plans, halting further accruals, and shifted employees to 401(k) schemes. According to the nonprofit Employee Benefit Research Institute (EBRI), the share of US private sector workers enrolled in corporate pension plans dropped from around 30% in 1988 to below 10% in 2024.

“With a pension, there’s no reason to leave” — Employees seek stability

However, this trend is reversing. According to WSJ, Matthew Cronin (27), who is in charge of customer grid connection work at utility provider PECO, recently started receiving pension benefits. While he plans to continue contributing to his 401(k), he hopes the corporate pension will make up for potential decreases in Social Security benefits. Cronin said, “Having a pension is a big motivator for staying with the company.”

At the core of this revival are changes in the pension system itself. Traditional pensions determined lifelong payouts based on years of service and final salary, so the more long-term employees a company had, the greater its burden would grow. This has largely been replaced by the “cash balance pension.” Here, employers deposit a fixed percentage of wages into personal accounts each year and guarantee returns based on Treasury yields, allowing companies to accurately estimate their annual contributions in advance.

Pension cost uncertainty resolved... Companies’ finances have strengthened

Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School, noted that these changes have “eliminated much of the funding burden and cost uncertainty that companies most feared.” She explained, “There is not a full-scale return to pension-centric systems, but rather a selective revival in progress.”

Corporate finances have also recovered. With stock prices rising and bond yields higher, it has become easier to fund future pension obligations. According to pension consulting firm Milliman, the top 100 corporate pension funds in the US now have enough assets to cover 112% of their obligations, up sharply from 77% in 2012. This means companies now have excess funds that can be used to enhance pension benefits for current employees.

IBM reopened the 'Cash Balance Pension' plan, which was frozen in 2008, in 2024, discontinuing 401(k) company contributions and newly operating a 'Retirement Benefit Account (RBA)' for all employees. Reuters Yonhap News Agency

According to FuturePlan by Ascensus, the number of employers operating a “cash balance pension” plan increased from 1,477 in 2001 to about 23,000 in 2020 and approximately 26,000 in 2023. IBM, for example, reopened its “cash balance pension” in 2024 after freezing the plan in 2008, discontinued corporate contributions to 401(k) plans, and launched a new “Retirement Benefit Account (RBA)” for all employees.

Labor unions are now using pensions as a bargaining chip. In recent negotiations, Delta Air Lines and Southwest Airlines introduced a “cash balance pension” for their pilots. At PECO, the company experienced its first strike in its 145-year history last July, ending after three days with a settlement including the introduction of a cash balance pension. Zorast Wadia, principal at US insurance consulting firm Milliman, told the WSJ that “there is a very strong push from plan participants to restart corporate pension programs.”

This content was produced with the assistance of AI translation services.