Our current pension system is in need or reform. It is one of those areas where government has created so much complexity and confusion that it opens the door for abuse by Corp America and cheating millions of workers out of their earned benefits. To begin with, we don't need so many different plans when it comes to people's pensions. Today, we have IRA, Keogh, 401K, social security, private pension plans and government pension plans and personal savings each with different rules and regulations. The only people that profits from these are the financial advisors and Corp. accountants and the losers are the American workers. The only two goals that pension reform should address are simplicity and fairness.

What is a pension? A pension is a form of coerced savings plan for individual workers so that they will have a nest egg of savings when they retire. Let's face it, if you are wealthy, you don't need a pension plan. For the rest of us average workers, a pension plan is a government induced incentive to save a portion of your earnings so that you will have money in your retirement years. They do this as part of good public policy and also to minimize society's liability to take care of the poor. If pension plans do not exist, one can predict what will happen. A certain portion of the public will be irresponsible and spend all their earnings so that when they retire, they will only rely on Social Security as the only means of living. This was not and never was the intent of the Social Security Act.

Who should pay for pensions and who does pay? Ideally and justly, the only person who should pay for your pension plan is you. You are asked to put a side a portion of you current earnings so that you won't require public assistance in your unproductive years. This is simply called personal savings account. If the government did not get involved, your pension is your savings bank account. The problem comes when some citizens are not responsible and choose to spend all their income when they earn it. They end up broke at the end of their career and must rely on Social security check for all their living expenses. Because this is not sufficient for all their living expenses, they become prime candidates for the poverty roll. To prevent this from happening, the government, in their wisdom, got involved and decided to offer some incentive though coerced, to force everyone to save. This has taken the form of various programs such as IRA and 401K and in conjunction with businesses and unions, various private pension plans.
In the past, it made sense for businesses to offer these plans to their employees as both an incentive for getting quality employees and as tax breaks to offset their costs. Even though these were optional plans, they were quickly adopted by large Corp. to be "competitive" with their peers. Powerful labor unions and Government employees also got into the mix and demanded similar benefits from their employers. In the end, we, the taxpayer, are the payers of most of these plans.
There is nothing wrong with these plans and they have worked for many decades. The problem arises when some companies are allowed to raid their accumulated pension funds. When a company is experiencing financial problems, it is tempting to try and "borrow" from this large source of funds. In some cases, a company have gone bankrupt and taking all the pension funds with it such as with ENRON. The government had to resort to creating an insurance agency for pensions. The PBGC(Pension Benefits Guaranty Corp.) is a federal corporation created by the Employee Retirement Income Security Act of 1974.
Another problem is the new global economy. A consequence of this open trade policy has created inequities both in wages and benefits. The current financial problem at GM is a prime example. GM cannot compete with Toyota on a car by car basis because it has higher labor costs and pension and medical benefits negotiated by the unions.

What is the solution? The 401K is the correct model for a national pension plan. It needs several modifications to make it a truly robust pension plan. A plan must have the following properties:
1. It is owned by the individual and portable as the employee moves from job to job.
2. It is tax deferred and cannot be withdrawn prior to retirement age unless in the most dire circumstances.
3. It is open to contribution from both employer and employees with some limits.
4. The contributions are tax deferred.
5. The employee has the choice of a range of investment vehicles, stocks, mutual funds and indices with minimal restrictions to minimize risk.
6. It must have strong oversight so that it cannot be abused by over charging management fees.
7. A fair conversion structure should be worked out to convert or roll over all current plans into this new plan and it is to be revenue neutral.
8. Extra care should be taken to address older employees nearing retirement so that they do not loose the promised benefits from previous plans.
9. Similarly, a fair conversion should be worked out for all government employees including members of Congress. There is no reason why they should have a different plan than the rest of us.
10. In the event of death, the balance will go into the estate of the individual.

I think this is a simple savings plan that encompasses all the attributes of a successful long term savings strategy. It will take the control away from government and Corporations and give it to the individual where is belongs.

The recent announcement by IBM to discontinue their traditional pension plan is an example of what Corp. America is doing. They are moving towards the 401K plans as a replacement. The only problem I see with IBM's proposal is that they have used this conversion to further decrease their funding of previously promised benefits. They choose to reduce their contribution (from 5% to 2%) their portion of the pension funding. This has led to the continuing mistrust of the Board of Directors. They has systematically reduce their funding of traditional pensions and continually push the envelop and thereby invoked class action lawsuits by some employees. These actions and combined resource actions (layoffs) have led to lower morale and general poor working environment. This is not the IBM I knew having worked there for 28 years. IBM needs to go back and re-learn the life lessons of its founder, T.J. Watson Sr. THINK before they act. They have let accountants dictate their policy and that is a recipe for defeatism. If they are honest with their employees, I'm confident they will understand the crisis facing the company and will take the necessary steps to insure its viability. However, they will not accept huge Executive compensation packages at the expense of lower benefits year after year.

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