Why Pensions Are Fading Away
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Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. GE's decision to freeze pensions for 20,000 workers paints a dreary picture of the state of pensions in corporate America. We'll go into the details in a moment. First, some money and market news you should know. Workers may be required to share their tips under a Labor Department proposal released on Monday. The proposed rule would allow employers to require workers, such as restaurant servers, to pool tips with colleagues that don't traditionally receive tips, like dishwashers and cooks. But the rule would only go into effect if the tipped employee is paid the full federal minimum wage of $7.25 an hour.
What recent company action sparked this discussion about pensions?
Tipped workers can be paid as little as $2.13 an hour, as long as they earn enough tips to match the federal minimum. The rule would effectively wipe out an Obama-era policy that tried to do away with a tip-pooling practice. The policy was challenged in court and hasn't been enforced since 2012. Business advocates say the proposed rule would ensure that workers behind the scenes are fairly compensated. However, workers advocates say it would allow businesses to pay back-of-the-house workers less by shifting the burden to compensate them to other employees. This is the Trump administration's second attempt to rewrite the TIP rule. And there's a turf battle going on between animal-made meat and dairy products and their plant-based alternatives.
Nielsen says U.S. sales of plant-based meats climbed 8% by volume in the past year, while beef, pork, and chicken sales were flat. They're also showing up in more fast food restaurants. Burger King added the Impossible Whopper to its menus, and McDonald's is testing Beyond Meat Burgers. and some Canadian locations. But dairy farmers and cattle ranchers are putting up a fight.
What tip‑pooling Labor Department proposal could affect low‑wage workers?
Their trade groups are ramping up marketing to draw on the differences between cattle-made products and plant-made products made from soy, almonds, and peas. And these groups are calling for laws to protect the words milk and meat to only refer to animal products.
For generations of workers, a pension was the path to a comfortable retirement. But GE this week joined a long list of Fortune 500 companies that have either closed their pensions, frozen benefits, or moved pension beneficiaries to a company 401k plan. Let's bring in Wall Street Journal reporter Heather Gillers to discuss the differences between pensions and 401ks and where workers can still find pensions. So Heather, what does this tell us about pensions on a large scale at big corporations?
So there are several reasons why major employers have soured on big pensions. One is the market. I mean, it was just much easier in past decades to earn 7% or 8% on a mixed stock and bond portfolio than it is today. And where a pension differs from a 401k is that with a pension, the responsibility for making up any investment losses or failure to meet investment targets falls on the employer. So So if the employer invests your money and they only make 2%, well, they still have to pay you the amount that they would have had if they had made 7%. And where do they go to make up the difference? Well, that employer has to reach into their own pocket. A 401k, on the other hand, puts the risk on the employee.
So the employee, as anyone with a 401k probably knows, gets to pick from some investment choices, but how much money those investments return, that's up to the market. And if they fall short of what the employee was hoping, well, the employee's out of luck and the employer doesn't owe the employee anything.
There's a whole generation of people that really don't know what a pension is or how it operates. You did just explain it for us. And the number of companies offering them has dropped dramatically in the last 20 years. People are going to be hard-pressed to find a company offering a pension.
Pension programs that are not closed, that are enrolling new workers, mostly exist only in the public sector today. For new employees, I mean, you know, people who have been longtime employees on the private sector are still...
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