Providing Americans with adequate retirement income and affordable medical care remains one of the country's most hotly debated social and political topics of the 21 st century. However, the times have changed, as the medical cost of prolonged longevity has risen, and corporations’ ability to absorb the risks associated with multi-decade portfolios to finance those commitments has fallen. Over the past three decades, corporations in the private sector have successfully shifted the responsibility of retirement to individuals, as programs have been frozen or closed to new employees, with 401(k)-type saving programs acting as substitutes. What remains is a lingering program of the past that will slowly decline in size and number of covered retirees over the coming decades. For now, both S&P 500 pensions and OPEB remain a manageable cost with sufficient resources and cash flow to support them—even as decreasing interest rates could worsen the funding levels and ratios via higher discounted liabilities for 2019. For 2018, corporate pension underfunding stood at USD 270 billion—11.2% lower than the USD 304 billion level of 2017, as markets declined and interest rates used for liability discounting increased. The funding level increased to 86.35% in 2018 from 85.62% in 2017, 80.75% in 2016, 81.14% in 2015, and 81.12% in 2014. The most recent low-funding level was in 2012, at 77.26%, with the last full-funding level occurring in 2007, at 104.40%.
Clearly, the traditional defined-benefit corporate pension has become a relic of an earlier age, one that dates back to World War II, when the average American's life expectancy was 65 years. By 1974, when Congress passed the Employee Retirement Income Security Act (ERISA; the federal law that sets minimum standards for most voluntarily established pensions in the private industry), Americans’ average life expectancy had risen to 72 years. Today (according to the Center for Disease Control), the average life expectancy in the U.S. is 78.6 years (76.1 years for men and 81.1 years for women). In 1983, when the life expectancy was 74, the official Social Security age of "full retirement" was scaled forward from 65 years to 67 years, depending on the year of birth, as longevity continues to move up. Medicare eligibility, however, has remained at 65. As a result, post-employment medical costs associated with longevity have skyrocketed, as have the costs of prescription drugs and elder care.
