Could defined benefit pensions make a comeback?

Conditions could be ripe for large employers to restart plans

Once upon a time, many workers didn’t need to worry about how they would spread 401(k) savings across their retirement years. Instead, they received a defined benefit pension. Employers contributed to the plans and managed them; at retirement, a monthly check started arriving in the mail, and they continued until the retired employee died.

In 1989, 32 percent of workers had a traditional pension—a figure that had plunged to just 12 percent in 2019, according to the Center for Retirement Research at Boston College. Most of that decline occurred in the private sector - pensions remain the central retirement benefit for most state and municipal workers.

But some experts think there’s a chance for the defined benefit pension plan to make a comeback in the private sector, at least among larger employers. At the recent annual conference of the National Institute on Retirement Security, two speakers made the provocative argument that conditions are ripe for at least some companies who have, closed, frozen or terminated their DB plans to restart them, or bring back plans with updated features.

That would be a very positive development for retirement security in the United States. Over the past four decades, we have witnessed the rise of a tax-deferred defined contribution saving system that has accrued wealth for the affluent, and has not come close to closing the gap left by the decline of defined benefit pensions, which provide a benefit to all covered employees.

Learn more in my latest Morningstar column.

A different way to think about cognitive decline

Thirty years ago, the artist Anne Basting saw the limitations of our standard ways of caregiving while she was volunteering at a locked Alzheimer’s unit, and she wanted to do something about it. So she came up with a more creative approach to communication, hoping to provide people with dementia new possibilities to engage with their environment, and with other people. Since then, her work has earned her a MacArthur fellowship, and opened up new ways of thinking about communicating across cognitive decline.

In this podcast interview, Basting talks with Lulu Garcia-Navarro of the New York Times about her work. This is well worth a listen!

Biden plan to cut Medicare Advantage fraud sparks a frenzy

The Medicare Advantage industry is pushing back hard against a Biden administration plan to curb fraudulent billing practices that cost the federal government billions annually, and that also put upward pressure on premiums for all program enrollees. The New York Times reported this week on the frenzied lobbying campaign.

The industry claims that the cuts would lead to diminished quality of care for patients enrolled in its plans. But Paul Van de Water of the Center for Budget and Policy Priorities debunks that claim in this blog post:

Even if — contrary to the CMS estimate — payments to MA plans fell slightly in 2024, the effect on MA beneficiaries is likely to be minimal. The MA industry has pointed to a commissioned study that assumes that any reduction in plans’ revenues would result in an increase in premiums or a decrease in benefits. But that’s not necessarily the case. CMS’ proposed changes are small, and insurers have significant flexibility in deciding how they will respond to changes in payments. 

Medicare Advantage has enjoyed nearly lockstep support in Congress for many years. The industry is a powerful, well-funded lobby on Capitol Hill, and it is able to generate plenty of support from enrollees who like their Advantage plans. That is to say - they like their plans when they are younger and healthier and perceive value in the “extra benefits” provided (some amount dental coverage or a gym membership). Enrollees may not be so thrilled when they must navigate the managed care maze of prior approval and outright denial of care, or learn that a needed medical specialist doesn’t participate in their plans.

But support in Congress appears to be eroding in the face of mounting audits, lawsuits and investigations. One detail that caught my eye in the Times story is that the industry lobbyists couldn’t round up enough support in the House to circulate a well-known annual fealty letter:

Medicare Advantage plans are so popular that these changes could affect many people, but the widely publicized lawsuits, audits and reviews have influenced the views of past supporters in Congress. Last year, nearly 80 percent of the members of the House of Representatives signed a letter to Medicare urging its officials to “provide a stable rate and policy environment for Medicare Advantage.”

But this year, support among lawmakers appears to have weakened, despite the avalanche of constituent calls. So many legislators would have fallen off the House letter that the insurance industry has declined to circulate one, several congressional aides said. That shift came in part from increasing awareness of overbilling, but also because of concerns about deceptive marketing and denials of care, they said.

The Medicare chapter of my book Retirement Reboot lays out an argument for enrolling in traditional Medicare wherever possible. Coupled with a Medigap and Part D premium, this is the gold standard of health insurance in the United States. You’ll pay more upfront in premiums but the trade-off is worth it over the long course of retirement, both in dollars spent and peace of mind.

Retirement Reboot happenings

I’ll be talking about Retirement Reboot at Bookends & Beginnings in Evanston, Illinois the evening of April 13th. If you’re in the vicinity, please stop by to say hello. I’ll offer brief remarks, do some Q&A and sign copies. The event is free, but please RSVP here to help us get an accurate head count. I’m also booked to speak at the Morningstar Investment Conference on April 27th at McCormick Place in Chicago - I’ll be joining Christine Benz of Morningstar and journalist Mary Beth Franklin for a conversation about Social Security.

Making the most of the intergenerational moment

Purpose in retirement is a topic near and dear to my heart - I’ve been writing about its importance for a couple decades now. And one of the people I always turn to for thought leadership on purpose is Marc Freedman.

Mark was the founder of Encore.org, which last year changed its name to CoGenerate, signaling its shift to a focus on ways that generations can come together for the common good.

Marc recently shared his thoughts on why we need to rethink old models of our life courses, and the importance of purpose, with the PBS NewsHour. Take a listen:

What I’m Reading

A much smaller Social Security COLA may be in the cards for 2024 . . . The aftermath of a pandemic requires as much focus as the start . . . Why seniors blocked entrances to the four largest U.S. banks . . . Emerging Social Security plans may fall short of addressing the retirement crisis.