We’ve all experienced tremendous impact to our personal finances (and net reduced worth) from this devastating recession.  We believed that if we chose to follow a prescribed path and live our lives in a responsible manner, our futures would be financially secure.  The generally accepted path to a secure retirement included earning a college degree, additional professional certifications and/or advanced degrees, having a good corporate job,maxing out 401K contributions over decades of continued, steady employment, and buying our own homes.

It was the path to realize the American Dream.  Like little soldiers, many of us lined up and drank the Kool Aid.

Following the downfall of the economy at large and its destruction of the housing and job markets, we no longer believe that following this path will secure our futures in retirement, or that it’s even possible anymore.  Nor do we believe that the job we landed just out of college will be there until retirement, that there are many employment options for people at all levels and capabilities, or that our homes will continue to increase in value over time.

We’ve learned the hard way that paternalistic employers are a thing of the past.  So many of our beliefs have been shaken to their very core!

We find ourselves living through a time of enormous transition in the employment relationship.  Trust in our employer to look out for us evaporated as millions of jobs were eliminated, benefits reduced and salaries frozen during this recession.  Yet even now, employers continue to continually reduce expenses to become more competitive on a global basis, further reducing their employee’s take home pay.

We know where we’ve been as employers, but where is the employment relationship going? Where will it land?  How much can we continue to cut total rewards and still retain necessary talent in our organizations?  The WSJ recently explored the changing employment relationship in their article, “Slump Prods Firms to Seek New Compact With Workers.”

They cited a Watson Wyatt study which found that fully two-thirds of large organizations who cut their health care benefits don’t intend to restore them to pre-recession levels.  When asked when they do expect to restore benefits, fewer than half of these companies responded they intend to do so within the next year, and 8% don’t ever expect to restore them.

Uncertainty, continual change and lowered total rewards expectations from employees have become the new norm for the employment relationship.  We’re witnessing it play out for employers through the erosion of two pillars of 20th century employment: employer subsidized retirement plans and employer paid healthcare benefits.

Hewitt Associates found that employers who offer health insurance spend an average of $6,700 per employee on those benefits in 2009, representing an almost doubling of costs since 2001.  In a weakened economy, employees are picking up an ever increasing cost of healthcare premiums, co-pays and related expenses.

The WSJ article profiled several people who’ve experienced this new employment paradigm on a firsthand basis.  One of them is Bonnie Templeton, an IT specialist based in Loveland, CO, who lost her university job.  Last year she began working for a small sign company for $42,000 or, “just over half” of what she earned at her former job.

Her new employer doesn’t offer a traditional healthcare plan that covers most expenses.  Instead, it offers a high-deductible plan, with a $3,000 deductible and a $75 monthly premium.  “You really are covering your own expenses,” she said.

Her father retired from Exxon Mobil, and still receives a pension at the age of 89.  There’s a 401K plan at her new job, offering portability.  But she hasn’t been employed there long enough to contribute.  Even if she were eligible she can’t afford to make contributions to the plan, since her husband lost his job as a technical writer in March.

Pension plans are increasingly funded by employees.  The Labor Department reported that in 1980, employees contributed approximately 11% of the cost of their retirement plan, yet by 2006 their share of contributions had jumped to 48%.  Now, only 20% of employees are covered by traditional, employer-funded pension plans.

Unisys Corporation, like many other employers, froze their pension benefits in 2006 and raised its maximum contribution to 401(k) accounts to 6% of workers’ pay from a 2% contribution.  Last December, the company announced that no matching would be made to employee contributions in 2009 to save costs.  A company spokesman said Unisys hasn’t yet decided when to restore contributions.

Phil Erickson, 53, a longtime employee and software engineer for Unisys, understands the company’s needs to make cuts to expenses saying that they underscore how the workplace is changing.  “When I started, the idea was you went into a company [and] lifetime employment was the norm.  You expected to rely on a company pension plan when you’re done and be pretty well taken care of.”

Now, he says, “You’ve got to look out for yourself, take care of yourself.” Mr. Erickson recently became a certified financial planner, and is taking evening classes working toward obtaining his MBA.

We’re midstream in this huge employment relationship transition.  Increased global competition, the falling value of the dollar, the escalating costs of benefits, the return of inflation and higher taxes all bid an ominous shadow over an economic recovery and improved labor market for the next few years.  Can we build a new path back to the American Dream for future generations?   If so, how?

Flickr photo courtesy of mountain man 2007

Tweet This Post