Dear Readers, I'm going to try a different format for this piece. If you think it is a really bad way to present matters, let me know.

Question: Why do pensions exist?

Answer: They exist as a means of incenting employees to work for a given entity.  It can be a very valuable benefit  to employees, because it is difficult to earn money in old age.

Q: How did we end up with retirement savings being predominantly associated with employment?

A: That's mostly an accident of history.  First some innovative firms offered defined benefit [DB] plans [paying a fixed sum at retirement for life, often with benefits to surviving spouses, and pre-retirement death benefits] in order to attract employees.  After World War II, many unions insisted and won such benefits, and many non-union firms imitated them.

Q: Why didn't many defined benefit plans persist to the present day?

A: In general, they were too expensive.

Q: If they were too expensive, why did they get created?

A: They weren't expensive at first.  The post-WWII era was one of booming demand and excellent demographics — there was only a small cohort of oldsters to support, and a rapidly growing population of workers.  Also, the funding mechanisms allowed by the government allowed for low levels of initial funding to get them started, and they assumed that corporations would easily catch up at some later date.  Sadly, some of the funding was so low that there were some defaults in the 1960s, leaving pensioners bereft.

Q: Ouch.  What happened as a result?

A: Eventually, Congress passed the Employee Retirement income Security Act in 1974.  That standardized pension funding methods and tightened them a little, but not enough for my taste.  It also created the Pension Benefit Guarantee Corporation to insure defined benefit plans.  It did many things to standardize and protect defined benefit pensions.  Protection comes at a cost, though, and costs went higher for DB plans.