As currently constituted, JPMorgan Chase & Co. is a collage of many different American banking companies. Overall, the history and pedigree that the market attaches to the J.P Morgan brand have seen the bank’s continued involvement in investment banking; private banking, treasury, and security services; private wealth management; asset management and private banking. On the other hand, the Chase brand facilitates its activities in the credit card markets of both the US and Canada along with its retail and commercial banking activities in those markets. Significantly, this company was formed around 2000 following the merger of Chase Manhattan Corporation and J.P Morgan & Co. This company has its headquarters in New York City.
According to Danzer, Disney, Dolton & Bondibene (2016), the provision of relatively generous incomes for the elderly is among the achievements of modern civilization. Further, they cite poverty reduction among the ageing along with overcoming market failures as some of the reason for government involvement in pension plans (Danzer, Disney, Dolton & Bondibene, 2016). Then again, they concede that pension plan budgets presently are being challenged by financial and demographic pressures. Further advancing this argument, Clark, Munnell & Orszag (2006), principally observes that the decline of defined benefit schemes in the private sector started with the passing of 3 pieces of legislation. Other causes they cite are the overseas movement of manufacturing jobs that historically offered defined pension plans. Also, they note that the information technology sector is less likely to offer such benefits and cite economic changes and the decline of unionization as other contributing reasons for the decline of private sector defined pension plans (Clark, Munnell & Orszag, 2006).
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Principally though, Clark et.al (2006), cite a string of legislative changes as the cause of such decline. Specifically, he observes changes effected between 1982 to 1986: The Tax Equity and Fiscal Responsibility Act of 1982 ; The Retirement Equity Act of 1984 and The Tax Reform Act and Single Payer Pension Plan of 1986 (Clark et.al 2006). Along with The Pension Protection Act of 2006 , these laws have increased the yearly volatility of pension funds by reducing the predictability of payment made to such plans (Clark et.al 2006). Furthermore, these laws increased both the scope and regularity complexity on the private sector retirement plans. Collectively, increased volatility meant that funding levels changed from one year to the next producing negative impacts on private companies’ cash flows and balance sheets. According to Lowenstein (2005), it was the inherent complexity and not costs that forced private companies away from fixed pension plans.
Similarly, Impact partners (2018) observes that The Revenue Act of 1978 as the genesis of the decline of fixed-benefits pension plans. They state that, the government in the spirit of offering employees additional payment plans other than the fixed-benefits kind allowed for 401(k) plans. Impact partners (2018), note that the Act was a tool used by corporate America to reduce the administrative costs and significant investment risk associated with the fixed-benefits pension plan. Ostensibly, Congress passed the Act for the benefit of the American public but really it was the brainchild of the Corporate America that had lobbied Congress for a tool to shift attendant costs and risks of fixed-benefits pension plans (Impact Partners 2018). Fast forward to the 90’s, Lowenstein (2005), observes that newer and then, smaller companies omitted fixed-benefit pension plans from their employee offerings. Then, as the small companies grew, this meant that traditional pension in the private sector had also reduced drastically.
Lowenstein (2005) attributes the decline to the growth of small companies that favored the 401(k) over traditional pension. He further notes that the introduction of the former coincided with a market upswing that lasted about two decades. A development which obscured the fact that 401(k) was introduced to supplement traditional pension schemes, and not replace them. Traditional pension plans guarantee employees income for as long as they or their spouses live. This pension approach requires the employer to pay a certain level of benefits, hence the descriptive term defined benefits (Lowenstein, 2005). Here, the logic is that employees do not have to concern themselves with how they will get their benefits as this is the employer’s responsibility. According to Clark et.al (2006), while the requirement of guarantee makes this plan advantageous to the employee, this same feature makes such plans unattractive to employers. This is because no profit-making entity can predict its capacity to meet such requirements decades later.
Conversely, a 401(k) plan allows an employer to defer taxes and does not require it to contribute or ensure that the contributions will be sufficient to support its retired employees (Lowenstein, 2005). Furthermore, the company passes the administrative duties of this plan to the employee. Practically, this potentially exposes retirees to prematurely exhausting their savings. Furthermore, Clark et.al (2005), observes that pension funds generally earn more than 401(k) plan holders and that the latter lacks the protection offered by the former.
The fact that typical pensions convert retirement assets into annual pays means that pension plans are better positioned to reduce old age poverty through its annuitization system which theoretically ensures that retirees have funds till their last breath. If pensioners live longer, the plan can still afford to support such members (Lowenstein, 2005). For instance, if a pensioner surpasses his calculated age expectancy, the basis of annuitization calculations, the plan simply supports such members with the resources of those who did not achieve their calculated age expectancy. Then again, concerns over prolonged life-expectancy have been used to point out the weaknesses of the pension system. That said, the 401(k) does not fare any better in this regard (Lowenstein, 2005).
According to the JP Morgan Chase & Co. (2018), the company offers both 401(k) and traditional retirement plans, a position reflective of the current regulatory conditions which allow employers to offer both though most companies have shifted to the former. Apparently, JP Morgan Chase & Co. specifically targets new hires with its 401(k) offering and has provisions that automatically enroll them within the first month of full-time employment (JP Morgan Chase & Co., 2018). The provisions clearly require new employees to be certain that the savings rates available will sufficiently meet their retirement age expenses. Furthermore, the company commits to match employees’ 401(k) contributions after three years of service for recent hires, as well as investment options and tools to help employees manage their retirement savings. On the other hand, the pension plan automatically enrolls employees after a year of total service with growth in this plan is expressed through interest and pay credits (JP Morgan Chase & Co., 2018). Critically, employees access ‘non-fortifiable’ rights to the value of their pension after 3 years of total service.
Despite the hurdles that businesses face in meeting their pension liabilities today, fundamentally, pensions remain good for business. Evidently, regulatory changes are necessary to restructure the system to scale down the complexity of administration and create a better risk profile for the employers. Furthermore, the prevalence of 401(k) plans has coincided with reduced production and increased employee turnover across American companies. The significance of the latter is equally long-term because estimates show that employee attrition costs companies up to 18 months salary when either a manager or professional leaves. When such a pattern repeats itself numerously, then such costs become significant. Yet, a potential solution lies in improving the terms of the payment plan to create a sense of security sufficient to inspire career-long loyalty.
References
Clark, G. L., Munnell, A. H., & Orszag, M. (2006). Oxford handbook of pensions and retirement income . Oxford: Oxford University Press.
Danzer, M., A., Disney, R., Dolton, P., & Bondibene, R., C. (2016). The Future of Pensions: Reforms and their Consequences – Introduction. National Institute Economic Review , No. 237. Retrieved from http://journals.sagepub.com/doi/pdf/10.1177/002795011623700110 . Retrieved on September 25, 2018.
Impact partners (2018). Where Did All The Pensions Go? Forbes . Retrieved from https://www.forbes.com/sites/impactpartners/2018/02/09/where-did-all-the-pensions-go/#13957fe83aab . Retrieved on September 25, 2018.
JP Morgan Chase & Co. (2018). Highlights of the 2018 JPMorgan Chase U.S. Benefits Program. JP Morgan Chase & Co . Retrieved from https://mywelcome.jpmorganchase.com/mywelcome/sites/hr/MyWelcome/Documents/US_Highlights_Benefits_Program.pdf . Retrieved on September 25, 2018.
Lowenstein, R. (2005). The End of Pensions. The New York Times . Retrieved from https://www.nytimes.com/2005/10/30/magazine/the-end-of-pensions.html . Retrieved on September 25, 2018.
