ERISA—Still ‘Nifty’ at 50

 I’ve long relished telling “newbies” to the retirement space that ERISA was the second big executive act of then-newly enshrined President Gerald R. Ford—less than one month after he took office. 

In fairness—and I’m not exactly a kid—I was barely out of high school when that event occurred.  I’ve never had a benefits program (retirement OR healthcare, and us retirement geeks tend to forget that ERISA also has sway over workplace health plans) that wasn’t operating under its auspices—and so, talking about what ERISA has done/changed requires going back before my personal experience. And yet, despite the disparaging acronym “Every Ridiculous Idea Since Adam,” what ERISA has accomplished—and what has emerged in its aftermath—seems truly remarkable to me. 

ERISA is, of course, the Employee Retirement Income Security Act of 1974—and on Labor Day 2024, that legislation will be 50 years young. Not that ERISA created either the concept or the reality of pensions and retirement plans; in fact, the former dates back to the time of the ancient Roman armies. But in America, the first private pension plan was that of the American Express Company in 1875—crafted in an effort to create a stable, career-oriented workforce. By 1899, there were (just) 13 private pension plans in the country.[i]

The reality is that employee pensions had very few protections under the law before ERISA—there were no rules around funding or protections for benefits if the plan sponsor went bankrupt or was sold. Many plans had long vesting schedules requiring as many as 20 to 30 years of service, some plans required employee service periods to be “uninterrupted,” and there were situations where companies reportedly terminated employees just a few months before vesting to avoid having to pay their pension benefits. 

Indeed, ERISA represented a major shift in attitude—inserting the federal government into an oversight role over what, until that point, had pretty well been left to the parties to the employment contract; employers, workers and unions. Perhaps most importantly, it established ERISA’s federal law preemption over what might otherwise have been a mishmash of state regulations and requirements.   

That said, ERISA did not require any employer to establish a retirement plan. It “only” required—and still requires—that those that establish plans meet certain minimum standards. However, the law did a number of things that we take for granted today. At a high level, it established federal standards for things like vesting, participation and eligibility. It established rules regarding reporting and disclosure about plan features, funding and investments to participants—and via mechanisms such as Form 5500, reporting to the government as well. It put limits on benefits—and gives participants the right to sue for benefits and breaches of their fiduciary duty under that law. 

Of course, ERISA wasn’t about making it easy—it was about making sure that the promises made to workers were upheld—and in that sense the EMPLOYEE retirement income security act was aptly named. The poster child for this undertaking was, of course, the bankruptcy (and discarded pension promises) of a major U.S. automaker[ii] (Studebaker,[iii] though arguably it was the assumed pension obligations of Packard that really did it in). And in that regard, SECURITY of those promises[iv] was paramount—it was about quality, not quantity—about ensuring that the promises made were promises kept.

Notably, ERISA established fiduciary duties for those managing retirement plans—requiring that fiduciaries act in the best interest of plan participants and beneficiaries. It laid the groundwork for a definition of fiduciary which would, a year later, find form in the so-called five-part test—which would hold for nearly 50 years.[v]

Has It Worked?

Has ERISA “worked”? Well, in signing that legislation, President Ford noted that from 1960 to 1970, private pension coverage increased from 21.2 million employees to approximately 30 million workers, while during that same period, assets of these private plans increased from $52 billion to $138 billion, acknowledging that “[i]t will not be long before such assets become the largest source of capital in our economy.”

As of the latest (2021) numbers available, that system has grown to exceed $13 trillion (and another $11.5 trillion in IRAs, much of which came from that private retirement system), covering nearly 100 million active workers (146 million in total) in more than 765,000 plans. Indeed, the Labor Department recently reported that plans disbursed $322.5 billion more than they received in contributions during 2021.

That said, the composition of the plans, like the composition of the workforce those plans cover, has changed significantly over time. While much is made about the perceived shortcomings in coverage of the current system, the projections of multi-trillion dollar shortfalls of retirement income, the pining for the “good old days” when (people act like) everyone had a pension (that never really existed for most), the reality is that ERISA—and its progeny—have unquestionably allowed more Americans to be better financially prepared for a longer retirement than they otherwise would be.

Fifty years on, ERISA—and the nation’s retirement challenges—may yet be a work in progress. But it’s hard to imagine American retirement without it. It is a rich legacy that we all benefit from today—and—with luck and the ongoing work to improve upon it—will—for decades to come.

Happy birthday, ERISA!

 

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[i] Steven A. Sass, The Promise of Private Pensions, The First Hundred Years, at 9 (1997).

[ii] I’d wager that a majority of Americans have never even heard of a Studebaker, and the notion that a major U.S. automobile maker once operated out of South Bend, Indiana would likely come as a surprise to most. The Studebaker brothers (there were five of them) went from being blacksmiths in the 1850s to making parts for wagons, to making wheelbarrows (that were in great demand during the 1849 Gold Rush) to building wagons used by the Union Army during the Civil War, before turning to making cars (first electric, then gasoline) after the turn of the century. Indeed, they had a good, long run making automobiles that were generally well regarded for their quality and reliability (their finances, not so much) until a combination of factors (including, ironically, pension funding) resulted in the cessation of production at the South Bend plant on Dec. 20, 1963.

[iii] Roughly 70% of Studebaker’s workers were left without their promised retirement benefits after the South Bend, Indiana plant was closed in 1963. Of some 10,500 current and former employees in the pension plan, about 4,000 with more than 20 years of history at the company received only about 15 cents for each dollar they expected—roughly 3,000 shorter tenured employees got nothing.

[iv] It's been opined by some that ERISA was responsible for the decline of traditional defined benefit pension plans—and certainly the vesting standards, reporting scrutiny, funding standards and the pension insurance premiums from ERISA’s formation of the Pension Benefit Guaranty Corporation (PBGC)—all designed to forestall outcomes like the Studebaker bankruptcy’s impact on its workers’ pensions played a part. While ERISA’s transparency requirements—and those funding requirements—have certainly been economic factors, it seems more likely that wide swings in interest rates, the accounting rigor imposed by FAS 87, the benefit limits imposed—and the elevation of those liabilities on the corporate balance sheet were the real culprits.

[v] Though with litigation pending, the five-part test still lives!

A Penchant for Pensions?

  I’m not sure how old I was when I first saw “Night of the Living Dead”—but I have long been intrigued by stories of a zombie apocalypse—where mindless beings inexplicably rise from the dead, with no memory of their past, just a relentless (and apparently insatiable) hunger for…well, “us.”

That is perhaps an unfortunate comparison to last week’s hearing by the Senate Health, Education, Labor and Pensions (HELP) Committee, one ostensibly held to focus on how we were going to stave off the retirement “crisis” by…bringing “back”[i] defined benefit plans.[ii]

There were two fundamental premises underlying the hearing; first that there is, in fact, a retirement crisis, and second, that the restoration of defined benefit plan designs would remedy that situation.  

There remains in many circles (including last week’s hearing) a pervasive sense that the defined contribution system is inferior to the defined benefit approach—a sense that seems driven not by what the latter actually produced in terms of benefits, but in terms of what it promised. Even now, it seems that you have to remind folks that the “less than half” covered by a workplace retirement plan was true even in the “good old days” before the 401(k), at least within the private sector. And when it comes to defined benefit plans, it was significantly less than half.

And while you can (eventually) wrest an acknowledgement from those familiar with the data, almost no one EVER talks about how few of even those covered by those DB plans put in the time required to vest in their full pension (particularly prior to the Tax Reform Act of 1986, which accelerated vesting schedules). Those who demonize the 401(k) are never asked to speak to the “coverage gap” that was actually wider when defined benefit structures were “in vogue,” nor called for an accounting of the shortfall between the actual benefits delivered versus the “promise.” And yet, those 401(k) critics in last week’s hearing—with a straight face—held forth on how much better things would be…if only defined benefit plans would come back.

Don’t get me wrong—defined benefit plans continue to serve a valued societal purpose (not the least of which the income they provide my 93-year-old mother, though given the state’s finances, she remains concerned how long they will last), though they tend to work “better” in the public sector and among unionized workforces, where one’s profession and job tenure tend to be less volatile. That said, it’s not like there was some kind of cataclysmic event that wiped them out overnight in the private sector. Rather, their demise was one of a hundred painful “cuts”—all well-intentioned, of course. 

There were (and are) premiums to provide insurance backing for plans that “fail,” disclosures to try and avoid (unexpected) failures, demands for a full accounting of the potential financial obligations those plans represented for the organizations that sponsor them, and finally a demand that those financials be moved from footnotes to the corporate balance sheet itself. At any number of points along that continuum, one could well understand and appreciate why employers would choose to step away from that burden—and they did. 

Moreover, with few exceptions they were able to do so without opposition from employees—who typically didn’t (and largely still don’t) appreciate the cost or benefit of a promise that won’t come to fruition until years, if not decades, beyond the date they expect to be employed by the firm making that promise. And that ignores a criticism highlighted by several in the hearing—that these programs aren’t always well-managed or funded to provide those promised benefits.         

Yes, a fully funded, fully vested benefit that you’ve paid nothing for is certainly a good thing. Little wonder that a recent survey (by one of those firms represented at the hearing) suggested a massive public clamoring for the alleged panacea of these programs. And considering the plethora of headlines proclaiming the dire straits of today’s retirees, who can be faulted for clinging to a benevolent notion of a simpler time when someone else worried about such things?

All that said, there was little in the way of actual data at the hearing to suggest that a return of DB (certainly at the expense of the 401(k)) would actually resolve the issues. Mostly the witnesses focused on the alleged shortcomings of the current system (albeit with some sharp differences in conclusions, and a brief debate about the different results one gets from actual data versus surveys reliant on what people think in terms of establishing whether or not there is an actual crisis), alongside some optimism that SECURE and SECURE 2.0 had laid the groundwork for potential improvement in coverage, sufficiency and decumulation options. If there was a consensus, it might have been that we need to address the projected shortfalls in Social Security benefits—and, truly, if that isn’t, then we really will be looking at a crisis.

The thing that makes cinematic zombies so terrifying is that there are so many of them—and that they keep getting up and pursuing you no matter how much damage you inflict.[iii] That, and they manage to “convert” more with a simple bite. Let’s face it—a truly serious look at the retirement “crisis” would acknowledge that under traditional vesting definitions and job turnover rates in the private sector, defined benefit designs are, at best, a dubious solution. 

A penchant has been described as an irresistible attraction, as someone having a “penchant” for taking risks. 

A more practical one would be to look at a system that is already in place and working for those with access—and talk about ways to make THAT reality a reality for all.

- Nevin E. Adams, JD

 

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[i] In fairness, there are still defined benefit plans about, even in the private sector—though they are considerably fewer than they were a generation ago, and many are frozen or in termination status. 

[ii] The hearing was titled and you can still listen to a recording of it here, "Taking a Serious Look at the Retirement Crisis in America: What Can We Do to Expand Defined Benefit Pension Plans for Workers."

[iii] Well, except for the occasional well-placed headshot.

Happy Birthday, ERISA!

Pensions were not on my mind in 1974, certainly not on Labor Day of that year. 

While I was pondering my new college textbooks (and trying to figure out how I was going to pay for $.55/gallon gasoline), President Gerald R. Ford, less than a month in that role—and, appropriately enough on Labor Day, signed into law the Employee Retirement Income Security Act of 1974—better known to most of us as ERISA.

Little did I know at the time that that law—and the structure it provided to the nation’s private pension system—would, in the years to follow, play such an integral role in my life. And yet, in a wide variety of positions, and a handful of different organizations and locations, from that first college internship in 1977 to—well, today—retirement has been my career.

ERISA did not create pensions, of course; they existed in significant numbers prior to 1974. A major motivation for ERISA was the termination of the Studebaker[i] pension plan for its hourly workers in 1963.  At the time, the plan covered roughly 10,500 workers, 3,600 of whom had already retired and who—despite the stories you sometimes hear about Studebaker—received their full benefits when the plan was terminated.

However, some 4,000 workers between the ages of 40 and 59—didn’t. They only got about 15 cents for each dollar of benefit they had been promised, though the average age of this group of workers was 52 years with an average of 23 years of service (another 2,900 employees, who all had less than 10 years of service, received nothing). And so, armed with the real life example of those Studebaker pensions, highlighting what had been a growing concern about the default risk of private sector plans (public sector programs weren’t seen as being vulnerable to the same risk at that time)—well, it may have been a decade before ERISA was to become a reality, but the example of Studebaker’s pensions provided a powerful and on-going “real life” reminder of the need for reform.

In fact, ERISA was designed to regulate what was there and would yet come to be—to protect the funds invested in those plans for the benefit of participants and beneficiaries with a consistent set of federal standards. And, as part of that protection, to establish the Pension Benefit Guaranty Corporation (PBGC).  As President Ford said at the time, “It is essential to bring some order and humanity into this welter of different and sometimes inequitable retirement plans within private industry.”

Has ERISA “worked”? Well, in signing that legislation, President Ford noted that from 1960 to 1970, private pension coverage increased from 21.2 million employees to approximately 30 million workers, while during that same period, assets of these private plans increased from $52 billion to $138 billion, acknowledging that “[i]t will not be long before such assets become the largest source of capital in our economy.” Today, that system has grown to exceed $12 trillion (and another 11.5 trillion in IRAs, much of which came from that private retirement system), covering more than 97 million active workers (142 million in total) in more than 746,000 plans. 

The composition of the plans, like the composition of the workforce those plans cover, has changed significantly over time. While much is made about the perceived shortcomings in coverage of the current system, the projections of multi-trillion dollar shortfalls of retirement income, the pining for the “good old days” when (people act like) everyone had a pension (that never really existed for most), the reality is that ERISA—and its progeny—have unquestionably allowed more Americans to be better financially prepared for a longer retirement. Indeed, the Labor Department recently reported that plans disbursed $266 billion more than they received in contributions[ii] during 2020.

Forty-nine years on, ERISA—and the nation’s retirement challenges—may yet be a work in progress. But it’s hard to imagine American retirement without it, and the individuals who gave it “birth.” 

Happy birthday, ERISA!

- Nevin E. Adams, JD 

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[i] I’d wager that a majority of Americans have never even heard of a Studebaker, and the notion that a major U.S. automobile maker once operated out of South Bend, Indiana would likely come as a surprise to most. The Studebaker brothers (there were five of them) went from being blacksmiths in the 1850s to making parts for wagons, to making wheelbarrows (that were in great demand during the 1849 Gold Rush) to building wagons used by the Union Army during the Civil War, before turning to making cars (first electric, then gasoline) after the turn of the century. Indeed, they had a good, long run making automobiles that were generally well regarded for their quality and reliability (their finances, not so much) until a combination of factors (including, ironically, pension funding) resulted in the cessation of production at the South Bend plant on Dec. 20, 1963.

[ii] Though in total, contributions (DB and DC) increased by 3.2%, to $694.2 billion.

 

The Birth of a Notion

"Unintended consequences” are generally a bad thing. But not always. The 401(k), for example.

This week we celebrated the birthday of the 401(k) – because it’s the anniversary of the day on which the Revenue Act of 1978 – which included a provision that became Internal Revenue Code (IRC) Sec. 401(k) – was signed into law by then-President Jimmy Carter.

That wasn’t the “point” of the legislation of course – it was about tax cuts (some things never change) – reduced individual and corporate tax rates (pulling the top rate down to 46% from 48%), increased personal exemptions and standard deductions, made some adjustments to capital gains, and – created flexible spending accounts. But it did, of course, also add Section 401(k) to the Internal Revenue Code.

That said, so-called “cash or deferred arrangements” had been around for a long time – basically predicated on the notion that if you don’t actually receive compensation (frequently an annual bonus or profit-sharing contribution in those times/employers), you don’t have to pay taxes on the compensation you hadn’t (yet) received. That approach was not without its challengers (notably the IRS) and, according to the Employee Benefit Research Institute (EBRI), this culminated in IRS guidance in 1956 (Rev. Rul, 56−497), which was subsequently revised (seven years later) as Rev. Rul. 63−180 in response to a federal court ruling (Hicks v. U.S.) on the deferral of profit-sharing contributions. Enter the Employee Retirement Income Security Act of 1974 (ERISA), which – among other things – barred the issuance of Treasury regulations prior to 1977 that would impact plans in place on June 27, 1974. That, in turn, put on hold a regulation proposed by the IRS in December 1972 that would have severely restricted the tax-deferred status of such plans. But ERISA also mandated a study of salary reduction plans – which, in turn, influenced the legislation that ultimately gave birth to the 401(k).

So, how did something that became America’s retirement plan get added to a tax reform package? Rep. Barber Conable, top Republican on the House Ways & Means Committee at the time, whose constituents included firms like Xerox and Eastman Kodak (which were interested in the deferral option for their executives), promoted the inclusion which added permanent provisions to “the Code,” sanctioning the use of salary reductions as a source of plan contributions. The law went into effect on Jan. 1, 1980, and regulations were issued Nov. 10, 1981 (which has, at other times, also been cited as a “birthday” of the 401(k)).

Now, it’s said that success has many fathers, while failure is an orphan. The most commonly repeated story is that Ted Benna saw an opportunity in this new provision, recommended it to a client (which, ironically, rejected the notion), but then promoted it to a consulting firm (Johnson & Johnson), which then embraced it for their own workers. The reality is almost certainly more nuanced than that, though Mr. Benna (who now derides what he ostensibly created) has managed to be deemed the “father” of the 401(k) by just about every media outlet in existence (it may be worth noting that while I am the father of three children, their mother was much more involved in the actual delivery).

What we do know is that in the years between 1978 and 1982, a number of firms (EBRI cites not only Johnson & Johnson, but FMC, PepsiCo, JC Penney, Honeywell, Savannah Foods & Industries, Hughes Aircraft Company and a San Francisco-based consulting firm called Coates, Herfurth, & England) began to develop 401(k) plan proposals, many of which officially began operation in January 1982.

Within two years, surveys showed that nearly half of all large firms were either already offering a 401(k) plan or considering one. Two years later the Tax Reform Act of 1984 (again, among other things) interjected nondiscrimination testing for these plans – and two years after that the Tax Reform Act of 1986 tightened the nondiscrimination rules further, and reduced the maximum annual 401(k) before-tax salary deferrals by employees. And yet, despite those – and a number of other significant changes over the intervening years – employers have continued to offer – and America’s workers have continued to take advantage of these programs.

Now, it’s long been said that 401(k)s were never intended (nor designed) to replace defined benefit pensions – true enough.

However, in 1979, only 28% of private-sector workers participated in a DB plan, with another 10% participating in both a DB and a DC plan. In contrast, the Investment Company Institute notes that, among all workers aged 26 to 64 in 2014, 63% participated in a retirement plan either directly or through a spouse. As of June 2018, Americans have set aside nearly $8 trillion in defined contribution plans, and there’s another $9 trillion in IRAs, much of which likely originated in DC/401(k) plans.

Those who know how defined benefit (DB) plan accrual formulas work understand that the actual benefit is a function of some definition of average pay and years of service. Moreover, prior to the mid-1980s, 10-year cliff vesting schedules were common for DB plans. What that meant was that if you worked for an employer fewer than 10 years (and most did), you’d be entitled to a pension of … $0.00. And, as you might expect, certainly back in 1982, even among the workers who were covered by a traditional pension, many would actually receive little or nothing from that plan design. But then, certainly in the private sector those plans were funded, invested (and paid for) by the employer. Nothing ventured,¹ nothing gained, right?

The reality is that the nation’s baseline retirement program is, and remains, Social Security. But for those who hope to do better, for those of even modest incomes who would like to carry that standard of living into post-employment, the nation’s retirement plan is, and has long been, the 401(k). And – despite a plethora of media coverage and academic hand-wringing that suggests they are wasting their time, the American public has, through thick and thin, largely hung in there – when they are given the opportunity to do so.

That may not have been the intent of the architects of the 401(k), or its assorted foster “parents” over the years. But these days it’s hard to imagine retirement without it.

So, happy 40^thbirthday, 401(k). And here’s to 40 more!

Nevin E. Adams, JD

I know that some would argue that workers effectively bargained for lower wages in return for the pension benefit. Maybe once upon a time, certainly in labor situations where there actually was an active bargaining component. But I suspect that most non-union private sector workers post-ERISA felt no such trade-off. ↩

A "Real Life" Example

In addition to the books, reference guides, and a few personal “knick knacks,” I have for years had in my office a couple of model cars – but not for the reason people generally think.

These models happen to be Studebakers (a 1950 Champion, a 1953 Starliner and a 1963 Avanti). I’d wager that a majority of Americans have never even heard of a Studebaker, and the notion that a major U.S. automobile maker once operated out of South Bend, Indiana would likely come as a surprise to most. I keep them in my office not because I have an appreciation for classic cars (though I do), but because of the role the automaker played in ERISA’s formation.

Born into a wagon-making family, the Studebaker brothers (there were five of them) went from being blacksmiths in the 1850s to making parts for wagons, to making wheelbarrows (that were in great demand during the 1849 Gold Rush) to building wagons used by the Union Army during the Civil War, before turning to making cars (first electric, then gasoline) after the turn of the century. Indeed, they had a good, long run making automobiles that were generally well regarded for their quality and reliability (their finances, not so much) until a combination of factors (including, ironically, pension funding) resulted in the cessation of production at the South Bend plant on Dec. 20, 1963. Shortly thereafter Studebaker terminated its retirement plan for hourly workers, and the plan defaulted on its obligations.

At the time, the plan covered roughly 10,500 workers, 3,600 of whom had already retired and who – despite the stories you sometimes hear about Studebaker – received their full benefits when the plan was terminated. However, some 4,000 workers between the ages of 40 and 59 – didn’t. They only got about 15 cents for each dollar of benefit they had been promised, though the average age of this group of workers was 52 years with an average of 23 years of service (another 2,900 employees, who all had less than 10 years of service, received nothing).

ERISA did not create pensions, of course; they existed in significant numbers prior to 1974, as the workers at Studebaker surely knew (they certainly had reason to – Studebaker-Packard had terminated the retirement plan for employees of the former Packard Motor Car company in 1958, and they got even less than the Studebaker workers wound up with in 1964). But armed with the real life example of those Studebaker pensions, highlighting what had been a growing concern about the default risk of private sector plans (public sector programs weren’t seen as being vulnerable to the same risk at that time) – well, it may have been a decade before ERISA was to become a reality, but the example of Studebaker’s pensions provided a powerful and on-going “real life” reminder of the need for reform.

Has ERISA “worked”? Well, in signing that legislation – 43 years ago this past weekend – President Ford noted that from 1960 to 1970, private pension coverage increased from 21.2 million employees to approximately 30 million workers, while during that same period, assets of these private plans increased from $52 billion to $138 billion, acknowledging that “[i]t will not be long before such assets become the largest source of capital in our economy.” His words were prophetic; today that system has grown to exceed $17 trillion, covering more than 85 million workers in more than 700,000 plans.

The composition of the plans, like the composition of the workforce those plans cover, has changed considerably over time, as has ERISA’s original framework. Today much is made about the shortcomings in coverage and protections of the current system, the projections of multitrillion-dollar shortfalls of retirement income, the pining for the “good old days” when everyone had a pension (that never really existed for most), the reality is that ERISA – and its progeny – have unquestionably allowed more Americans to be better financially prepared for retirement than ever before.

It’s a real life example I think about every time I look at those model cars – and every time I have the opportunity to explain the story behind them.

- Nevin E. Adams, JD

6 Things Boomers Need to Know About Saving for Retirement

Several weeks back, I wrote a column entitled, “5 Things Millennials Need to Know About Saving for Retirement.” But what about those at the brink of retirement?

Retirement seems close — perhaps too close for the comfort of Boomers, some of whom have already begun cycling into retirement. In fact, the youngest element of this cohort (born in 1964) is now already 51, and it’s said that 10,000 Boomers roll into retirement every day.

That said, whether you’ve been saving or not, or not saving enough — here are six things Boomers need to know about saving for retirement.

1. Social Security won’t be as much as you think it will be.

When you were your kids’ age(s), you too were likely disdainful about the long-term prospects for Social Security (and hey, your kids weren’t around for the real funding crisis back in the early 1980s!). That said, you’re not only close enough to collecting; many of you are probably in the age group where when politicians talk about making changes, they’re careful to assure you that yours won’t be changed.

However, even if one assumes that the program remains largely unchanged from what it pays today, if you retire at full retirement age in 2015, your maximum benefit would be $2,663 a month, according to the Social Security Administration. Those who retire at age 62 (and many of today’s workers do, not realizing that waiting can translate into larger benefits) in 2015, your maximum benefit would be $2,025; and if you retire at age 70 in 2015, it would be $3,501.

Now those amounts are based on earnings at the maximum taxable amount for every year after age 21. In other words, that’s probably more than most of us would get. In fact, the average monthly Social Security retirement benefit for January 2015 was $1,328. Note that the maximum benefit depends on the age a worker chooses to retire, among other things — and that assumes that the current questions regarding Social Security’s longer-term financial viability are addressed, and/or that current benefit levels aren’t reduced.

2. Not everyone has a pension, and you probably don’t. And if you do, it probably isn’t a full pension.

Now, by “pension” I mean the traditional defined benefit (DB) pension plan, one that, in the private sector anyway, was largely employer funded. According to the nonpartisan Employee Benefit Research Institute (EBRI), in 2011, just 3% of all private-sector workers participated only in a DB plan, and 11% had both a defined contribution (DC) plan and a DB plan. So, only something like 14% of workers in the private sector still have a traditional pension plan (even then, it doesn’t mean there’s no reason for concern; see “3 Pervasive Retirement Industry Myths”).

That said, you’ve been in the workforce long enough (and during the right time) that you might actually have a pension, or at least a piece of one. Here’s the thing: People talk like the Millennials invented rapid job turnover, but the reality is that job tenure statistics have been relatively consistent going all the way back to the 1950s. What that means is that lots of workers who were “covered” by a pension plan didn’t work at those employers long enough to vest in that pension, or at least not long enough to vest fully. So, look back through your work history, check and see if those employers offered a pension. And you might want to check out thismissing pension tool from the Pension Benefit Guaranty Corporation (PBGC).

3. You won’t be able to work as long as you think.

I’m sure there are days when you would love nothing more than to be able to stay in bed (or at least not go to work). But industry surveys continue to suggest that not only do people expect to work longer, their retirement savings calculations seem to depend on it.

You hear people talk about 65 as the “normal” retirement age, even though it’s no longer that, even for Social Security benefits (aside from the reality that many still start collecting at age 62, unless you were born before 1943, your normal retirement age is 66 or older — you can check yours out here.)

Meanwhile, EBRI’s Retirement Confidence Survey (RCS) has consistently found that a large percentage of retirees leave the workforce earlier than planned — 49% of them in 2014, for example. Many who retire earlier than they had planned often do so for negative reasons, such as a health problem or disability (61%), though some state that they retired early because they could afford to do so (26%).

The bottom line: You probably shouldn’t count on being able to work as long as your finances may require. And that may require cutting back in the here-and-now in the interests of the there-and-then.

4. You could be missing out on ‘free’ money.

When you started working, if your employer offered a DC plan, you had to fill out a form in order to participate (you probably even had to wait a year), make investment choices, etc. These days a growing number of employers automatically enroll eligible workers in these plans, direct their savings into a default investment alternative, and even automatically increase that initial deferral rate each year. But even among those employers, most only automatically enroll new hires, not existing hires. And that could mean that even if you work for one of those employers, you might have been overlooked by these “auto” enrollment programs — and you might still need to go get one of those enrollment forms (or visit the plan’s website).

Your savings may well be matched by your employer (see “6 Things 401(k) Participants Need to Know”), so even if you’ve missed out on years of the opportunity to save and have those savings matched, there’s no time like the present to start — and start as aggressively as you can. After all, time is — literally — money.

5. You can use catch-up contributions to catch up.

Thanks to a provision in the tax code, individuals who are age 50 or older at the end of the calendar year can make annual catch-up contributions; up to $6,000 in 2015 and 2016 may be permitted by 401(k)s, 403(b)s, governmental 457s, and SARSEPs (you can do this with IRAs, as well, but the limits are much smaller). The bottom line: If you haven’t saved enough, these catch-up provisions can help. You can find out more here.

6. It’s not too late to start.

The reality is, without a sense of where you stand, what resources you have available, what your needs are and how long you have to prepare, it’s impossible to figure out the best way forward. But it starts with figuring out how much you’ll need. And for that, you might check out EBRI’s Ballpark E$timate — it’s free and easy to use. Then gather up those 401(k) statements, those IRA accounts, check for missing pension balances, and start saving!

- Nevin E. Adams, JD

5 Things Millennials Need to Know About Saving for Retirement

Retirement seems a long time off — particularly when you’re young.

However, Millennials — generally defined as those born between 1978 and 2004 — are living longer, and many will have to finance retirements that are actually longer than their working careers.

So, while it can hardly be expected to be top-of-mind for most of this group, here are five things worth knowing about saving for retirement — now.

1. Social Security won’t be as much as you think it will be.

Okay, some of you don’t think it will be anything at all, certainly not by the time that you are old enough to collect. But set aside for a moment the questions you may have as to whether or not Social Security is financially viable without reform, or if you should even count on it at all. Your parents — who are either now, or soon hope to be, collecting Social Security — had the same concerns, after all.

However, even if you assume that the program remains largely unchanged from what it pays today, if you retire at full retirement age in 2015, your maximum benefit would be $2,663 a month, according to the Social Security Administration. However, if you retire at age 62 in 2015, your maximum benefit would be $2,025; and if you retire at age 70 in 2015, your maximum benefit would be $3,501.
Now those amounts are based on earnings at the maximum taxable amount for every year after age 21. In other words, that’s probably more than most of us would get. In fact, the average monthly Social Security retirement benefit for January 2015 was $1,328. Note that the maximum benefit depends on the age a worker chooses to retire, among other things — and that assumes that the current questions regarding Social Security’s longer-term financial viability are addressed, and/or that current benefit levels aren’t reduced.

In sum, the odds that you’ll get that current maximum aren’t large — and the odds that current benefits will be reduced still seem pretty good.

2. Not everyone has a pension, and you probably don’t.

Now, by “pension” I mean the traditional defined benefit (DB) pension plan; one that, in the private sector anyway, was largely employer funded. According to the nonpartisan Employee Benefit Research Institute (EBRI), in 2011, just 3% of all private-sector workers participated only in a DB plan, and 11% had both a defined contribution (DC) and a DB plan. So, only something like 14% of workers in the private sector still have a traditional pension plan (even then, it doesn’t mean there’s no reason for concern; see “3 Pervasive Retirement Industry Myths“.)

Despite this, studies pop up every so often that indicate that a remarkably large number of workers think they do have a pension. Do you? Better double check.

3. You won’t be able to work as long as you think.

You hear people talk about 65 as the “normal” retirement age, even though it’s no longer that, even for Social Security benefits. Oddly, considering all the talk you hear about people retiring later, the average age at which U.S. retirees report retiring is 62 — an age that has increased in recent years — while the average age at which non-retired Americans expect to retire, 66, has largely stayed the same.

Meanwhile, EBRI’s Retirement Confidence Survey (RCS) has consistently found that a large percentage of retirees leave the workforce earlier than planned — 49% of them in 2014, for example. Many who retire earlier than they had planned often do so for negative reasons, such as a health problem or disability (61%), though some state that they retired early because they could afford to do so (26%).

So, if you’re thinking you don’t need to save for retirement now because you can you just keep working… well, you might need a “Plan B.”

4. You could be missing out on ‘free’ money.

Okay, you may not be saving at all (your parents got off to a slow start as well). You won’t be the first group of young workers to have college debt, or just have a lot of things you’d rather spend your money on in the here-and-now. Or both. It can be hard, particularly when you’re getting established, to prioritize all the demands on your paycheck.

But if you do have a 401(k) or other retirement savings plan at work, you may also have something called an employer match (see “6 Things 401(k) Participants Need to Know“). That’s where your employer will put into your account a certain amount, perhaps 50 cents for every dollar you save. For you, that’s “free money,” but you’ll only get that if you actually take advantage of your retirement savings plan at work.

p.s.: if have been automatically enrolled in your employer’s 401(k), you may want to check out the savings rate. These typically start contributions from your paycheck at a much lower rate (a 3% default savings rate is common) than those who have taken the time to fill out an enrollment form (who tend to go with the savings rate matched by their employer.

5. The sooner you start, the easier it will be.

The Labor Department says that for every 10 years you delay before starting to save for retirement, you will need to save three times as much each month to catch up.

I know it sounds simplistic. But trust me, you’ll be amazed at how quickly your retirement savings grow. See, the money you save earns interest. Then you earn interest on the money you originally save, plus on the interest you’ve accumulated. As your savings grow, you earn interest on a bigger and bigger pool of money. This is something financial pros call the “magic of compounding.” But it’s no trick.

- Nevin E. Adams, JD