Tag: Financial Planning

A generation ago, retirees didn’t have a lot of choice when it came to how they would structure their retirement income. They had Social Security and their guaranteed monthly pension checks provided by the employer they had dedicated thirty years of their lives to. In 1975, almost 80% of retirement income came from Social Security and defined benefit pension plans. The employees had little opportunity to contribute towards their own retirements through payroll deduction programs like 401(k)s. Employer-provided pensions are technically defined benefit pension plans. For ease of understanding, I will refer to these plans as “pensions.”

The Shift from Pensions to 401(k)s

The various plans where employees and employers can deposit into individual accounts are called defined contribution plans. Again, for ease of understanding I will refer to all the various defined contribution plans as 401(k)s. The 401(k) was born in 1978 and it gained immediate popularity and started replacing the traditional pension plan. In 1975 there were 103,346 pension plans in the U.S. today there are fewer than 45,000. Additionally, the majority of the 45,000 remaining pension plans are found in the public sector with states, municipalities, universities and school districts. It is estimated that there remain less than 7,000 private sector pension plans in the United States.

Following the national trend, Intermountain Health announced on January 20, 2026, that they are freezing their pension plan. Freezing a plan does not mean that employees will be losing their pensions, it means that Intermountain Health will stop funding or adding more money to existing plans. Participants of the pension will continue to have the choice of receiving a guaranteed monthly income when they retire or they will be able to roll the value of their pension to an IRA. Like other corporations, Intermountain Health decided to use the money that was being allocated to fund their pension in alternative ways which would be more beneficial to their caregivers.

There are three reasons why companies are transitioning from the traditional pension plan to 401(k)s

1. Pension plans have become too burdensome for most employers to maintain.

The decline of the traditional pension plan began in the 1970s when the government tried to rectify the abuse it saw in corporate America. They did this by passing the Employee Retirement Income Security Act (ERISA). While ERISA has corrected much of the corporate abuse over the years, it also introduced many complicated laws that are hard to comply with. To avoid dealing with the politics and complexities of ERISA, many companies decided to do away with their pension plans. They were never a mandatory offering for companies, and it was easier to do away with the plans than to conform to ERISA’s complex regulations.

2. There is a tremendous liability for companies that provide pension plans.

Companies that offer these plans must, by law, provide current retirees with their pre-determined retirement benefit every month, even if the pool of money the pensions are paid from underperforms. Pension payments, especially during turbulent economic times, have the potential to put a company out of business. As companies calculate the risks, the costs, and the difficulty of maintaining pension plans, most companies conclude that there are better ways to provide value to their employees.

Monthly pension payments come from an investment portfolio managed by the pension plan. Many pension plans don’t have sufficient money in their plans to pay projected obligations; or, in other words, they are underfunded. In fact, the latest studies indicate that pension plans across the United States are underfunded by hundreds of billions of dollars. Intermountain Health’s pension plan is fully funded. The management of the Intermountain Health’s pension plan has done an excellent job saving and investing to ensure that there will be sufficient dollars to be able to pay all the current and future obligations that it has to their employees.

3. Times have changed.

Employers recognize that pension plans do not protect and benefit their employees as they once did. Two societal changes have made pension plans less beneficial:

First, we have become a much more mobile society.

Gone are the days when an employee worked for one company for an entire career. Pension plans rewarded the long-term employee with a monthly retirement check, but these rewards came with a cost— not of money, but of time. The price to be eligible for these plans was decades of loyalty to a single company.

401(k) plans of today are much better equipped to deal with the shorter duration that most workers commit to a single employer. Even if employees work for an employer for a short amount of time, they can roll 100% of their contributions to a new 401(k), or to an IRA, upon terminating employment with the employer.

Second, longer life expectancies.

Inflation has always been with us, but this generation has a unique challenge when it comes to inflation. It is rare to find a private sector company with a cost-of-living benefit included within their pension plan. In other words, the monthly payments that retirees receive from their pension are usually not adjusted for inflation. Intermountain Health’s pension does not adjust for inflation. If you only live 10-15 years in retirement as did previous generations, inflation does not have time to become a lifestyle-changing problem. Many of today’s retirees will live thirty years or more in retirement and thirty-year retirements are destroyed by inflation. For example, if you start your retirement receiving a $3,000 dollar per month pension payment, and your payment is not adjusted for inflation, your monthly payment will stay $3,000 until you die. The historical inflation rate in the United States has been close to 3%, and at just a 3% inflation rate the $3,000 monthly payment will only be able to buy the equivalent of $1,200 worth of goods and services at the end of a thirty-year retirement. That is a sixty percent cut in pay. Because of inflation, and longer life expectancies, traditional pension plans do not furnish the security that they were originally intended to provide.

Before we get into the impact that this change will have on caregivers, I first want to remind you of the benefits that come with participating in a 401(k) plan.

Key Benefits of 401(k) plans:

• Tax Savings Now (Traditional 401(k)): Contributions are deducted from your paycheck before taxes, reducing your current taxable income and potentially lowering your tax bracket.

• Tax-Deferred Growth: Your investments grow without being taxed each year, letting your money compound more effectively.

• Tax-Free Withdrawals (Roth 401(k)): If you choose the Roth option, you pay taxes now, but qualified withdrawals in retirement are completely tax-free.

• Employer Match: Many employers contribute money to your account, often dollar-for-dollar up to a certain percentage of your salary – essentially free money.

• Compound Interest: Starting early allows your earnings to generate their own earnings, significantly boosting your savings over time.

• Convenience: Contributions are automatically taken from your paycheck, making saving effortless and disciplined.

• Higher Limits: You can save more in a 401(k) annually compared to an IRA.

• Portability: You can take your 401(k) with you when changing jobs, often by rolling it over.

The Impact of freezing the pension and enhancing the 401(k) for Intermountain Health Caregivers

Since the announcement of this change, I have heard some Intermountain Health employees express that they are “losing their pension.” That statement is false and puts a negative spin on what I believe to be a very positive development. Intermountain Health is simply reallocating resources from the pension plan to the employee’s 401(k) plans. Beginning January 2027, Intermountain Health is going to pay all caregivers and additional 2% of salary to their 401(k). Adding this, along with the already generous match that Intermountain Health provides to its 401(k) plan participants, makes Intermountain Health’s 401(k) one of the elite 401(k) plans in the country. Additionally, the company is allowing their employees to rollover the value of their pensions, while they are still employed, to an IRA or to their existing 401(k)s at Intermountain Health.

By freezing the pension plan, and enhancing the 401(k) plan, Intermountain Health is putting their employees in charge of their own destiny. Caregivers should be excited about the opportunity to have more control over their own finances. Granted, some caregivers will need to be more thoughtful than they have been in the past as they manage their own 401(k)s. Some will need to become better educated. Even though this change will place more responsibility upon caregivers to manage their own retirements, there is a tremendous upside for those who learn, and take advantage of this opportunity and utilize the tools and the resources that they are given to enhance their retirement and grow their 401(k).

Intermountain Health is dedicated to the personal success of their caregivers, and they recognize that additional educational opportunities will need to be offered to ensure a successful transition and to prepare employees to have the best possible retirement. Intermountain Health has asked our company, Peterson Wealth Advisors, to teach the same class that we teach to employees at Brigham Young University, and to the alumni of Utah Valley University to Intermountain Health caregivers. This online class helps participants to make sound decisions regarding their 401(k)s now and prepares future retirees with the knowledge they will need to make the best decisions at retirement. The class objective is to teach attendees how to create a tax efficient, inflation adjusted stream of income that will last throughout retirement.

Details as to the timing of the class will be forthcoming.