US Airways Cut Company Contributions to Employee Retirement Plans

A company's decision to cut pension plan contributions puts employees in the middle of two unsavory alternatives. On the one hand, unions and employees groups are up in arms when companies reduce employee retirement benefits, which workers have come to expect and rely on. On the other hand, in the case of ailing companies such as US Airways, such cost-cutting measures may be a means to save a company from financial ruin, a situation that could cost workers not only company retirement contributions but the employees' jobs as well. Adding to this dilemma is the fact that many workers have portions of their portfolio invested in company stock. A company's poor performance due to financial difficulties lowers the value of employee-held stock, which additionally threatens employees' retirement. Whether a company reduces employee benefits to improve share price or maintains those benefits and sees a loss in profitability, leading to a reduction in share values.

In the near future, many employees may face reduced retirement benefits similar to those of US Airways employees. More and more, it will be up to employees to fund and manage their own retirement investments.

In his book Prophecy Robert Kiyosaki notes that this change began occurring long before the current business cycle with the passing of the Employee Retirement Income Security Act (ERISA) of 1974, which ushered in defined contribution retirement plans to replace defined benefit plans of the previous generation (Kiyosaki, 2002). Whereas defined benefit plans, as the name implies, defined a benefit an employee was to receive upon retirement, defined contribution plans require an employee to contribute to his or her own retirement fund - typically a 401(k) - with the employer matching the contribution. Thus the employer retains responsibility to assist the employee in building a retirement fund but is longer responsible for the quantity of the payout upon retirement.

 

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