IMHO: The Point of No Return

Last month it was my privilege to act as co-host and moderator for our first-ever Defined Benefit Summit.

The setting – Washington, D.C., – was auspicious and inspiring, and the topics were suitably reflective of the complexities confronting our nation’s defined benefit system.   We were fortunate to have panelists who both understood and who could help shed light on those complexities and an audience that was both responsive and engaged in the dialogue that ensued.

We had chosen “The Point of No Return” as the underlying theme for the conference, a choice that, as I told those in attendance, no doubt brings with it some ominous overtones.   However, I reminded conference attendees that, in reality, a point of no return is simply the point beyond which you cannot go back to the point at which you started.   If you are piloting a plane, it simply means you lack the fuel to return to your point of departure.   It does not, however, mean that you necessarily wind up in a bad place, or that you should brace for a crash.   In fact, in the vast majority of situations, it means that you wind up exactly where you intended to.

Indeed, as anyone can attest who has ushered a child off to college, departed “home” for a place of their own, or said their final farewells to a loved one, life has a certain relentless forward motion.   Still, I’ll concede that the point of no return has a negative ring to the ears.   Perhaps it is the inclusion of the word “no”, or maybe, we just hate to have choices – even bad choices – removed from “the menu.”  

Going Forward

Things will be different for defined benefit plans going forward, though perhaps not as dramatically, or as negatively, as some now proclaim, IMHO.   It is easy to be drawn into the persistent negativism regarding pensions by the incessant drumbeat of the headlines.   Still, there was a surprisingly resilient faith in the system in evidence at the conference, from both panelists and audience members alike (there were certainly “naysayers” present as well).   One might well argue that attendees at a conference focused on defined benefit plans might be predisposed toward favorable outcomes for that system, there was a certain “real world” grounding in the perspectives there that is all too often lacking from the academic treatises and simplistic headlines that bombard us today.

The vast majority of defined benefit plans are in reasonably sound financial condition, and getting better all the time, courtesy of good markets, rising interest rates, and employer contributions.   By most accounts, the impact of the new Financial Accounting Standards Board (FASB) rules has reportedly been anticipated by employers and just as importantly, the markets.   By the time the more restrictive bounds of the Pension Protection Act take hold, the improved funding status of many plans will doubtless soften that blow as well.  

Changes lie ahead, both in terms of funding and plan design – that was the near-unanimous sense of those present – but those are nothing new to plan sponsors.   Will the pace of change accelerate?   Almost certainly.   Will that continue to drive some employers to freeze and/or terminate their current defined benefit plans?   Will some make shifts in the asset allocations?   Count on it.   Will the headlines continue to focus on those who have set those designs aside?   Those plans who have, through omission or commission, allowed the financial integrity of those programs to deteriorate?   Be serious.

We live in a dynamic and constantly changing world.   We live longer, and labor differently than our parents did.   The Baby Boomers (and those that employ them) may well have already in large measure “outgrown” the kind of career commitments that current defined benefit designs reward.  

What we haven’t outgrown is the need for a dignified, financially secure retirement.