The troubled industrial giant General Electric is freezing its U.S. pension plan for some 20,000 employees. Starting in 2021, the retirement-savings vehicle for current employees and new hires will be its 401(k). GE is also offering to buy out some 100,000 former employees who are members of its pension plan but aren’t yet collecting. There’s no change in benefits for current retirees.
The move isn’t surprising. Private-sector companies have been moving away from offering employees defined benefit pensions for several decades. These pensions act like a paycheck for retirees, and the company bears the investment risk. With 401(k)s, the employee — not the company — is the risk taker.
GE’s shift in retirement plans is yet one more example of rising economic insecurity for the average worker and the typical household.
The increasing fiscal uncertainty later in life is part of a much broader trend toward household income insecurity. Senior management has restructured millions of Americans out of jobs over the past several decades while clamping down on wages. The ranks of contingent workers are up.
To be sure, job insecurity is down with the relatively tight labor market of recent years. That’s good news, clearly. “But in its place has emerged a different scourge — static or lower pay and rising income insecurity,” Andy Haldane, economist at the Bank of England, said recently. “Job insecurity at the end of the 20th century has given way to income insecurity at the start of the 21st.”
Institutional innovations are needed to deal with household income insecurity, including as it relates to retirement income. More resources need to be devoted to worker training and lifelong learning. Health, pension and child care systems should be redesigned to support a mobile workforce.
In the meantime, there are steps you can take to reduce your vulnerability to volatile income swings. The most important is to reduce household debt. The reason for highlighting debt is that for the past two decades incomes have largely stagnated while households have borrowed heavily to pay for homes, college and other middle-class goods and services.
This isn’t a screed against debt. Borrowing can pay off. Think investments in education and homeownership. But an uncertain economic outlook says that now is a good time to eliminate loans, especially credit card, auto and home equity. The path to less household risk lies with creating a low overhead.
Chris Farrell is senior economics contributor, “Marketplace,” commentator, Minnesota Public Radio.