According to a new report from the Economic Policy Institute, on the state of retirement for American workers, two fundamental shifts have occurred in recent decades.
First, employers have managed to fundamentally change the nature of retirement funding by substituting defined-contribution plans for defined-benefit plans, thus shifting the risk from themselves to workers.* For example, in 1989, 41 percent of families age 32-61 had defined-benefit plans versus 35 percent that had defined-contribution plans. By 2013, that difference had reversed in dramatic fashion: only 21 percent had defined-benefit plans while 43 percent had defined-contribution plans.
Second, the percentage of families age 32-61 with any retirement plan has declined over the same period from 58 percent to 53 percent.
The combination of the two shifts has left working families even more dependent on the vicissitudes of Wall Street, since that’s where their retirement savings (if they have them) are invested, and the Social Security system, exactly when the direction of the national discussion at the elite level has been to cut Social Security payments.
Is it any wonder that American workers—while they’re working and as they attempt to plan for retirement—are feeling both insecure and angry?
*For those who are unfamiliar with the difference between the two kinds of plans, here’s a quick primer:
401(k) and similar plans are referred to as defined-contribution (DC) plans because employer contributions, rather than retirement benefits, are determined in advance and employers incur no long-term liabilities. Participants in these plans are responsible for making investment decisions and shoulder investment and other risks. In contrast, in traditional defined-benefit (DB) plans (pension plans, in layman’s terms), employers are responsible for funding promised benefits, making up the difference if the contributions are insufficient due to lower-than-expected investment returns, for example.
My father and many in his generation had defined-benefit plans, in other words, real pensions. I and many in my generation, if we have a retirement plan at all, only have access to defined-contribution plans.