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Distributor's Link Magazine Winter Issue 2016 / Vol 39 No1

46 THE DISTRIBUTOR’S

46 THE DISTRIBUTOR’S LINK Jim Truesdell James Truesdell is President of Brauer Supply Company, a distributor of specialty fasteners, insulation, air filtration, and air conditioning with headquarters in St. Louis. Mr. Truesdell is adjunct professor at Saint Louis University and Webster University. An attorney and frequently published writer, he is the author of “Total Quality Management: Reports From the Front Lines”. THE EMPLOYER’S ROLE IN SUPPORTING SUCCESSFUL RETIREMENT PLANS For many years the traditional private company pension plan for employees has been disappearing. As a result many Americans are approaching retirement with woefully inadequate nest eggs to fund their golden years. Where retirement had once rested on twin pillars of social security and company pension plans it now looks like an insufficient social security check stands alone for many who have failed to contribute to and build 401K savings balances that were supposed to replace the private pension. How did this come about? Ironically it was a “do gooder” attempt to protect the working public from inadequately funded pensions that began the move away from those pension entities toward plans resting on employee savings efforts. The Employee Retirement Income Security Act (ERISA) of 1974 was enacted to protect workers against the problem of fluctuating markets, poor investment decisions, over reliance on the employer's own stock, and and malfeasance of plan managers. It came into law in the wake of some high profile plan bankruptcies and widely reported misappropriation of funds in both individual company pensions and union plans. The intent was to strengthen standards for plan trustees and company representatives who incurred new fiduciary liabilities under the law as well as voluminous new reporting CONTRIBUTOR ARTICLE responsibilities. The Pension Benefit Guaranty Corporation sprang into being to provide contingent funding for plans whose funds are not able to deliver on fixed benefits promised. Companies, under the new law, had to pay insurance premiums to fund the PBGCI. They faced required deficiency payments when plans become underfunded even if, as participants in some multi-employer funds found, there was little a company could do to influence or control the pension plan management or investments. Companies began to sometimes carry contingent underfunded liabilities on their books as declining interest rates and zigzagging stock values began to create shortfalls in the money available to meet benefits promised under those pensions were were now labeled “Defined BenefitPlans” (so-called because that is what they do -define what a specific pension benefit would be upon a worker's planned retirement). Costs of providing those pensions were continuously climbing as required actuarial testing and needed fiduciary insurance added to the company burden. The answer sought by many organizations and the alternative which is almost universally in place today is the so-called “defined contribution” plan. This is the plan to allow employee saving for retirement (401K or one of its many variations) whereby the employer provides a tax deferred structural plan to allow employee saving. CONTINUED ON PAGE 128

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