Could Pensions follow Healthcare?

While reading the lead story in the April 2009 edition of CFO Magazine regarding the evolution of 401k plans in America, I began to wonder about the occurrences behind the shift away from pensions and if their dismal performance could eventually require a government takeover similar to plans for universal healthcare.

Initially, the 401(k) plan was a benefit to the corporations because it allowed for the general shift in financial recognition from the income statement to the balance sheet. The move allowed companies to give employees stock as a benefit where the employees would share in the gains (and losses) of the company stock performance. The pension plans required the company to make-up investment short-comings with cash contributions to ensure the benefit obligations.

With the current state of the economy and corporate equity valuations as measured by stock indices, the gains in stock performance supporting the middle class wealth have disappeared due to the financial crisis. Employees with plans to retire within the next five years will have to reevaluate those plans even if they had managed to alter their portfolio mix prior to the decline. They still took a hit. Those workers in bankrupt companies still covered by defined pensions have some protections provided by the Pension Benefit Guaranty Corporation (PBGC).

This current economic state of the financial crisis is what brought on the pondering. However, I do not think that pension/401(k) retirement plans will go the way of healthcare for a couple of fundamental reasons. The first reason is that there is no current political pressure highlighting the system disparities because all employees are theoretically in the same system. Although contributions vary at different employment levels within any organization, all are subject to the market fluctuations in stock values.

The second reason, and probably the biggest, is that the system is not a structural competitive burden to US corporations such as healthcare. The largest commercial competitors in the US market hail from the EU, Japan, and China which all have some version of Universal Healthcare. This means the burden of managing rising healthcare cost rests with the government and not the corporations. Insurance companies, hospitals, and pharmaceutical companies are not transferring inefficiencies and protecting their own profitability at the expense of manufacturers or other companies competing internationally.