What the Economic Downturn Could Mean for Pension Plans
By Mark Miller
Investing guru Bill Bernstein has compared investors in defined-contribution plans to airline passengers sent to the cockpit to fly the plane. Bernstein would much prefer a retirement system that relies on defined-benefit pensions, with their professional management and automatic participation.
The unfolding coronavirus crisis underscores the value of professional pension pilots–and the structure of defined-benefit plans, which don’t rely on short-term market performance to meet near-term obligations.
The same claim cannot be made for the 401(k) or IRA accounts of investors who are retired or close to retirement. Such investors are facing tough questions now about the reliability of their portfolios. While there’s no immediate danger that defined-benefit pension plans will fall short of resources to meet obligations during the pandemic crisis, many are taking their lumps as financial markets tumble.
And the knock-on effects of the economic downturn could pose long-term challenges for pension plan sponsors as they try to meet their obligations to participants. The situations vary among the key pension sectors–corporate, multiemployer, and public.
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