Revenue growth at American companies is almost non-existent as consumers put the brakes on spending (since they don’t have any extra money to spend). So, corporate America is resorting to cutting costs to maintain its profits. To achieve this, many companies are cutting wages, reducing their full-time workforce, and freezing pensions. It’s the easiest thing for them to do.
And this is putting in jeopardy the retirement lifestyles of millions of Americans.
Companies Freezing Pension Plans
Consider this: just recently, it was reported that United Parcel Service, Inc. (NYSE:UPS) would be freezing the pension plans for 70,000 of its non-union workers over the next five years. (Source: “UPS to Freeze Pension Plans for Nonunion Staffers,” The Wall Street Journal, June 27, 2017.)
What choice did UPS have? It has a soaring pension deficit of close to $10.0 billion.
UPS isn’t the only company that is freezing its pension plan; in 2014, more than one out of three Fortune 500 companies froze their defined benefit plans in one way or another.
And this isn’t going to stop anytime soon. According to Mercer, a consulting firm, at the end of 2016, the pension deficit of S&P 1500 companies amounted to $408.0 billion. According to a report from Citigroup Inc, at the end of 2016, pension plans at S&P 1500 companies were only 76% funded. (Source: Ibid.)
American Cities, States Filing for Bankruptcy
But it’s not just corporate America doing this. The public sector is struggling to keep their pension plans afloat, too.
As has been well documented in these pages, after the housing bubble burst in 2007 and 2008, many cities suddenly found themselves struggling to pay their bills because their main sources of revenue—property taxes—took a hit.
In recent years, we have seen U.S. cities file for bankruptcy when their spending obligations outweighed their revenue. In many cases, the pension and retirement accounts of city workers were wiped out.
Now we are seeing states struggle. Currently, the deer in the headlights is the State of Illinois. Unfortunately, the bankruptcy of Illinois might be a forgone conclusion, as it carries a massive pension deficit and a budget that’s completely out of whack.
Retirement Crisis in the U.S.
Dear reader; there’s a retirement crisis in the U.S. economy right now. Those who are not saving on their own, which is most of the U.S. population, could find themselves not financially ready for retirement for many years to come. That’s the reality of America today.