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The following editorial first appeared in the Minneapolis Star Tribune:
When 3MCorp. dropped its defined-benefit pension programs for new employees last week, it joined the inexorable trend toward asking workers to take more responsibility for all parts of their lives, from financing retirement to health care. Now, instead of a defined-benefit plan, where companies provide a set benefit each month to retired employees, companies have turned to defined-contribution plans, such as 401(k)s.
3M had been a hold-out among large companies in hanging on to its pension plan and had little choice but to fall in line. The company will now contribute 3 percent of pay to retirement accounts and match employee contributions dollar-for-dollar up to 6 percent of pay.
Less than a third of Fortune 100 companies offer traditional defined-benefit plans now. In a dynamic economy, with people frequently changing jobs to pursue better opportunities and companies often scaling up and then downsizing, plans such as 401(k)s make sense for companies and employees. They give workers portability, allowing them to take their money when they leave a company, and they give firms predictability, relieving them of the burden of unpredictable pension costs.
But it's important to remember that unpredictability does not go away; it's simply transferred to the employee.
Unless we are prepared to deal with the consequences of a nation of retirees struggling to make ends meet, we need to bolster the support structures that help people take on their new responsibilities and make smart choices.
In some respects, we're already moving down the path of forcing help onto those who need it. Four out of nine companies that offer 401(k) plans, including 3M, also automatically enroll new employees into the program unless the employee actively chooses not to participate, according to Hewitt Associates, a human-resources firm. Companies only began automatic enrollment in large numbers after they received federal protection from liability.
But even with automatic enrollment, individuals rarely set aside enough money, along with employer contributions, to support themselves through retirement. And although most large employers offer retirement plans, overall only one in five companies of any size does so.
"Personal responsibility" has become the mantra of the day as we rebel against the "nanny state." Nevertheless, individuals need to have adequate tools to take on those added challenges. If they don't, they'll fail to effectively navigate the ever-more-complex personal finance and health care systems. For many, it's not a fair fight, as the current mortgage crisis shows.
The new paradigm of individuals being held accountable for their own well-being needs to be bolstered by support structures that aggressively steer people toward positive choices.