MADISON, Wis.-Calling defined benefit pension plans "ticking time bombs," Fred Johnson eliminated CUES defined pension program about three years ago.
At that time the CUES president stopped the plan for himself and the rest of the staff, paid out what was in the plan to employees, and provided counseling to his team that led to 100% rolling over their money into a 401(K). "I was afraid those who were strapped to pay bills might be tempted to cash out, but they didn't," said Johnson.
Johnson stopped the plan because interest rates had dropped so significantly that the investment vehicles in which the plan's funds were invested were were not making enough money each year to fund the plan at 110%. That meant CUES had to make up the difference.
Explaining that law allows companies to shut down defined benefit pension programs when the decision is based on the pension plan damaging the future of the company, Johnson emphasized that defined pension plans can be extremely costly to organizations. "The defined benefit pension plan killed the automobile industry. When interest rates go down and retirees begin to outnumber employees, that is when these plans become very costly."
It's similar plans, Johnson pointed out, that are also killing the budgets of many cities and municipalities. "You've seen the stories: In New York City a 44-year-old firefighter retires with a $100,000 pension for life and a Chicago parks commissioner collects a $166,000 pension."
