Legacy benefits

Many businesses and many government agencies are finding themselves in a bind because of the cost of legacy benefits. These are benefits for employees after retirement and GM paying for its 500,000 retirees is costing $2,000 per car. How did this happen. GM led the way with employee benefits in the 60’s and 70’s and they were highly praised for their efforts. It was an easy out for management who wanted the next quarterly dividend to look good to its investors. This also allowed the CEO to keep his job. Rather than give benefits that had to be paid out immediately he choose to offer benefits that would be paid many years later. This arrangement satisfied the unions and kept the dividend up. You might say it was a win for both sides. When the government took over GM they gave a lot of ownership to the unions in return for the unions taking on some of the legacy cost particularly heath care. This same kind of activity was taking place in many companies and in many public jobs. The proof of this is the fact that people who have worked with a defined benefit pension plan are now finding retirement at age 62 too hard to pass up. The reason is that they can have more net pay by retiring as opposed to continue working. We have designed system that has people spending the last 20 years of their lives looking for something worthwhile to do. Seniors are suffering from obesity and alcohol abuse and these lead to many other health problems. People who are retired after 40 years in the work force find themselves looking for a reason to get up in the morning. Amid all the praise over the great retirement plans we now are living with the unintended consequences. Future retirement plans will be designed for later ages and replacing defined benefit plans with 401K plans are the first step.