The year 2008 was the worst fiscal year for all those with pension plans, when over $5 trillion stood withdrawn from company-sponsored retirement plans. Markets in Japan, the US, the United Kingdom and the Netherlands felt the pinch. Assets the world over decreased by 19% owing to the plunge in the stock market, Germany being the sole country with a boost in value.
This mostly affected the United States’ pension plans that amount for over 60% of worldwide pension assets. In the end of fiscal year 2008, Company Pension Fund Contributions stood reduced by $400 billion owing to the crisis. The US retirement funds dropped by two trillion dollars.
The enormous losses have compelled people who had plans to retire to fine-tune their retirement saving plans, retirement investing plans, and their contributions and withdrawal plans for their IRA. In several instances, individuals totally ceased all traditional contributions towards 401(K) and IRA plan, with some going to the extent of terminating their 401K plan, resulting in people being compelled to alter their current lifestyle and overwork. People looking forward to a healthy retirement plan for their income suffered severely. For example, the largest Colorado Pension fund suffered a loss of $11 billion that represented over a quarter of its resources. North Carolina state plan lost 17% in value. Defying these great losses, certain companies cut the paltry pension of some employees but hiked the CEO salaries.
Enormous Effects of Pension Losses
Those lacking a plan for retirement will suffer badly, and the effect will go viral, especially for those who saw their property values declining, leaving their mortgages underwater as well. The crisis will affect not only effect individual finances, but also corporate earnings. Pension plans sponsored by companies is a rarity. Companies would prefer their employees to have their own retirement plans. Most companies showcased pension plans as a crucial feature to attract and retain employees in the not too distant past. Over the last several decades, the 401k retirement plans substituted for the existing defined benefit plans, requiring the employees to save for retirement by contributing a portion of their pay instead of companies paying it as a fringe benefit. 401k plans were not sufficient for all, however. Many employees opted for the Roth IRA or traditional IRA, to aid their pension plans.
2007 ended in company over-funding pension plans. The close of 2008 faced financial disaster; these very plans were grossly under-funded. Consequently, this wave of $400 billion ended with the pension plan funded by only 75%.
The stock-market crash led companies to the crossroads of having to choose between cost cutting and withdrawal from business or compromising on investment on pension plans, as an aftermath of which, employees saving for retirement had no alternative, but to face the brunt.
How has your retirement plans changed because of the financial crisis of the last few years? Do you have a pension that is still fully funded or are you worried about receiving your full benefits? Has your company stopped with it’s pension contributions or with it’s 401k matching program? Tell us in the comments below. And don’t forget to share this article!