History of Pensions

The history of pensions in the United States is a journey through the progression of social welfare and employment benefits, echoing the broader shifts in the economy and society. This article overviews this evolution, tracing pension history from its late 19th-century beginnings to its contemporary form.

Beginnings and Initial Growth (Late 19th Century – 1920s):

While instances of pension plans in the United States predate the Revolutionary War, the formal inception of pensions in the U.S. primarily served to address the needs of war veterans (from the Revolutionary War onwards). The establishment of the first significant federal pension program after the Civil War marked an important milestone, extending benefits to those who made incredible sacrifices on behalf of our country, disabled veterans, widows, and orphans, setting the stage for future federal pension initiatives. Many municipalities, including New York City, also began to establish their own pension plans for their growing workforces during the 19th century.

The late 19th century also saw the emergence of private pension plans, beginning with American Express in 1875. Around the turn of the 20th century, major corporations like US Steel, Standard Oil, and Goodyear also offered their employees pensions. These plans, like their contemporary counterparts, were aimed at retaining and incentivizing long-term employees and curbing turnover. Pension programs have always been costly, but they became more attractive following the Revenue Act of 1913, which allowed retirement plans to enjoy tax-exempt status, enhancing their economic appeal and saturation. Pension Fund joined these early adopters, offering pension plans to ministers as early as 1919.

The Great Depression and the Advent of Social Security (1930s):

Monumental changes were in store for the country in 1929. The stock market crash and subsequent Great Depression starkly highlighted the inadequacies of retirement savings for many, leading to the enactment of the Social Security Act in 1935 under President Franklin D. Roosevelt. This pivotal legislation introduced Social Security, the federal program designed as a safety net for the elderly, revolutionizing the concept of retirement in the U.S. With this program in place, a basic level of security in retirement would become available to many Americans. Pension Fund’s current pension program actually pre-dates Social Security with the Pension Plan launching in 1931 – meeting the needs of ministers looking for secure retirement.

Post-War Expansion and Development (1940s – 1960s):

The aftermath of World War II ushered in a period of unprecedented growth and sophistication for the U.S. pension system. The labor market's dynamics, characterized by robust unions and rapid industrial expansion, spurred a significant increase in employer-sponsored pension plans. The Internal Revenue Act of 1942 further propelled this trend by offering tax deductions for employer contributions to pension funds.

This era predominantly favored defined benefit plans, such as Pension Fund’s Pension Plan, guaranteeing retirees a specific monthly payment, with the economic boom of the 1950s and 1960s facilitating this expansion. By the late 1960s, pensions had become a cornerstone of the American retirement framework, covering a substantial portion (roughly half) of the private-sector workforce. With life expectancy steadily increasing, pension benefits would become more important than ever for many but also more expensive for employers to provide.

Regulatory Changes and Paradigm Shifts (1970s – 2000s):

In the 1970s, employers began struggling to properly maintain and fund their pension plans. This lead to the late 20th century seeing a significant pivot from defined benefit to defined contribution plans, like 401(k)s, reflecting shifts in labor and regulatory landscapes and transferring retirement-saving responsibilities to employees.

Facing New Challenges (21st Century):

The pension system in the U.S. has entered the 21st century, grappling with challenges such as an aging populace, economic uncertainties, and debates over the sustainability of Social Security as structured. However, the prevalence of defined contribution plans has sparked concerns over the sufficiency of retirement savings for many Americans, as many workers were unable (or unwilling) to adequately prepare for their own needs. Both of these things are contributing factors to the retirement crisis that faces America today, and Pension Fund wants to walk beside you on your journey to retirement. Pension Fund offers products and programs to help you combat the retirement crisis including offering financial education services through Your Money Line. And fortunately for Pension Fund members, the Pension Plan is fully-funded, and Pension Plan members can expect a monthly payment for life from their accounts.

While the retirement landscape has changed over the years, and we should expect continued changes to our retirement systems over time. it is more important than ever to prioritize saving – both early and often.