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Old 09-16-2014, 10:15 AM
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Mary Pat Campbell
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
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Why do so few workers have a pension plan these days? Blame the shareholders, says a new paper.

Adam Cobb, a management professor at the University of Pennsylvania’s Wharton School, suggests that shareholders have gained greater influence in firms while employees’ power has waned. And in their hunt for big returns, shareholders–particularly financial investors that purchase large stakes—play an important role in the shrinking pool of pensions.

Among other things, he found a significant connection between investors’ accrual of large blocks of shares (at least 5%) and the likelihood that a company abandoned its pension plan or stopped making it available to new hires. Those large blocks indicate greater influence in management decisions, he says.

Sixty percent of Fortune 500 companies offered defined-benefit pensions to new hires in 1998, according to consulting firm Towers Watson in a report published earlier this month, By the end of 2013, that portion had dropped to 24%.

And one more plan just took a bullet. An internal memo from Johnson & Johnson, made public last week, notified workers that pension benefits will be reduced for people hired after January 1, 2015. The company didn’t specify whether the pensions would be dropped entirely.

“Among firms I examine here, in 1982 dispersed stock ownership is the largest category, comprising 26.4 percent of the sample. By 2006, only 5.5 percent of firms had no shareholder controlling at least five percent of its shares,” he writes. During that period, the number of pension participants in the average firm dropped by about one-third, likely due to new employees being shut out of the plans.

An analysis by Haig Nalbantian, a senior partner at human-resources consulting firm Mercer, found that shifting away from pension plans to 401(k)s can lead to an exodus of younger, high-potential workers when market downturns lower older workers’ account balances, forcing them to delay retirement.

“The explicit pressure from investors to the CEO may be, ‘you need to figure out a way to boost performance,’ without much direction,” Cobb said. “If you miss an earnings forecast and you have an angry shareholder meeting and analyst call, then you start wondering, what do we do? And you can do A, B, C, D, and E. And firms pick combinations of those options.”

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