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Death of the Traditional Pension Plan


									                    Death of the Traditional Pension Plan

The traditional pension plan is a concept from the past that is likely to never come back
to the American culture. The concept of the pension plan is ingrained into the fabric of
our country's roots, and Generation X is going to be the first generation in US history that
will not experience the benefits of this retirement plan. Through adamant deregulation of
the investment banking industry from the early 1980s throughout the 1990s, deteriorating
market conditions have caused corporations to steadily abandon the traditional pension

The first pension plans in the US were given to veterans of the Revolutionary War, and
more extensively in the Civil War. The promise for a guaranteed paycheck in exchange
for your services to your country was an attractive motivator for soldiers, and still is
today (and rightfully so). The concept of this idea caught wind and extended to state and
local governments through the late 19th century. This unique retirement plan attracted
several employees to governmental jobs and helped grow our government accordingly.

The first organized civilian pension plan was offered in 1920 through the Civil Service
Retirement System (CSRS). This organization provided retirement, disability, and
survivor benefits for nongovernmental employees. It was the first of its kind on US soil.
Once the CSRS was formed, the American dream of retirement became a reality for
civilians. The CSRS remained in power until 1987 when it was renamed Federal
Employees Retirement System (FERS).

After the Great Depression, Wall Street integrated its entire financial planning ideology
around the concept of the pension plan. Since income planning was not an issue, thanks
to the popular pension plan and social security, the accumulation of funds to supplement
retirement took center stage. This financial planning practice turned into a multibillion
dollar industry for several decades. This was able to happen because the Glass Steagall
Act limited Wall Street on the amount of risk they could take on by separating financial
services, which in turn allowed for consistent growth that fueled the economy and
embedded the pension as the retirement dream in the US.

The traditional pension plan started to fade quickly in the latter part of the 1980s. Wall
Street's attempt to deregulate the financial sector, and overturn the Glass Steagall Act,
was unfortunately starting to prove successful. After the Monetary Control Act of 1980,
banks were allowed to dictate what interest rates they were able to pay on CDs and fixed
accounts as well as what interest rate they wanted to charge on mortgage loans. With this
act, some banks started to pay CD rates as high as 20% and charged interest rates on
home loans as high as 20% as well (rates that never reached this level before). Prior to
this act, home loan interest rates were federally regulated to prevent such actions. This
ultimately led to the recession of the 1980's and for the first time in our US history the
number of companies offering traditional pension plans started to decline.
Deregulation continued to take its toll throughout the 1990s and allowed the investment
banks to control all the financial sectors without any limitations. Once again, prior to
1980 the Glass Steagall Act prohibited these actions from taking place and in turn
allowed the market to sustain positive growth for several decades. Eventually, the actions
of our top investment banks brought upon the Collateralized Debt Obligations (CDOs),
which ultimately led to the Financial Collapse of 2008. The rest is recent history.

The steady decline of the pension plan in the 1980s was replaced with an escalating
number of deferred compensation plans. The burden of retirement was placed on the
employee, as most employers could not afford to pay the pensions. Over the last 12 years
most deferred compensation plans have yielded a negative return, drastically delaying
retirement for many. Volatility continues to be the norm and the only real remedy is the
hopes of the Federal government cutting a check at the tax payer's expense.

Without refocusing long term planning efforts to income planning, this trend is likely to
continue. Most experts today agree that Americans under the age of 50 will only see a
fraction of what social security pays today. Furthermore, with the vast majority of
Americans without a pension for retirement, most will be walking into retirement with
near zero income. Those who fail to act on contractual income guarantees will fall victim
to this retirement trap, and their only hope is to rely on a deferred compensation plan that
has at best broken even over the last decade. Bottom line, the traditional financial
planning method is not working, and will continue to deteriorate the American dream of

Today the only promise of income planning for life is offered through the Insurance
industry. Instead of focusing on hedging against risk for the investor, they focus on
guaranteed payouts through a non cash value account known as an income account value.
In exchange for a lump sum amount, an investor can guarantee an income stream for life
while having access to the cash value as well (a feature the traditional pension plan failed
to offer). This payment is guaranteed regardless of future market conditions through
protected cash reserve pools. The longer one waits for an income stream, typically the
more income they will receive.

During the financial collapse of 2008 the Insurance industry had record sales utilizing
lifetime income. The need for income planning could not be more important. Investors
are starting to realize that a paycheck for life is outweighing the need to try and beat the
market within a global recession. Make no mistake about it, those who fail to utilize
proper income planning are likely to never retire; or at best severely delay their

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