Posts Tagged ‘pensions’


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199880 Clay Bennett editorial cartoon


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People are always amazed when I tell them how little American workers have managed to save for retirement—and, thus, why the Social Security system is so important.

According to a new report from the Economic Policy Institute, on the state of retirement for American workers, the numbers are sobering.

Remember from yesterday that nearly half of American working families have no retirement account savings at all. That makes median (fiftieth-percentile) values low for all age groups, ranging from $480 for families in their mid-30s to $17,000 for families approaching retirement in 2013. For most age groups, median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium.


Of course, mean retirement savings are much higher than the median. Yet, while average retirement account savings grew somewhat between 2001 and 2013, this was mostly due to the aging of the large baby-boomer cohort, as older families have had more time to accumulate savings. And, for those baby-boomers, their retirement savings had declined on average more than 20 percent between 2007 and 2013.

In fact, rather than declines (or, for some groups, stagnation), we should be seeing rising retirement account balances at all ages to offset declines in defined-benefit pension coverage and Social Security cuts.

And we’re not.


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.


Some people continue working late in life because they find their jobs rewarding. That’s fine. Me, I have a hard time imagining my life without teaching and writing. (As for many other aspects of my job, well, they can shove them.)

But it’s different when people continue to be forced to have the freedom to work in old age for other reasons—because they have more debt, less savings, and no pensions compared to workers of previous generations.

As it turns out, that’s what’s happening to many older Americans, especially women:

In 1992, one in 12 women worked past age 65. That number is now around one in seven. By 2024, it will grow to almost one in five, or about 6.3 million workers, according to Labor Department projections. . .

From the end of World War II to the 1980s, the share of older Americans in the workforce fell every year. That reversed by the mid-1990s, as companies shifted from traditional pension plans—which paid fixed benefits at specific retirement ages—to 401(k) savings plans, which transferred the responsibility of funding retirement to employees.

The past recession made things worse, forcing many workers out of jobs before they could afford to retire. While older workers were less likely to lose their jobs in the recession than younger workers, the older workers who did, particularly women, were hit hardest, according to researchers at the Federal Reserve Bank of St. Louis. . .

Older men and women are leaving the workforce more slowly than in the past, suggesting a greater potential labor supply—and more slack—than an unemployment rate below 5% would typically imply. Such economic slack must be cinched—by finding jobs for discouraged younger workers, for example—before wages can rise more broadly.


Illinois has the most underfunded retirement system of any state in the country and the largest pension burden relative to state revenue. It also has the highest number of public-pension funds close to insolvency, such as the one for Chicago’s police and firefighters.

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Like many states, the funding of the retirement system in Illinois suffered from the decline in asset values following on from the financial crash of 2007-08. But the situation is even more dire in Illinois because lawmakers have repeatedly failed to fix the state’s revenues, especially the single-rate income tax.* This has made a bad situation even worse, with growing inequality in the state. Illinois now has the nation’s ninth-highest level of income inequality.

The only solution to the funding problem, at least in the short term, will come from increased revenues based on a progressive income tax. But the new governor of the state, Republican Bruce Rauner, has other plans. He has decided to attack public-sector unions, by issuing an executive order that allows state employees not to pay “fair share” fees related to collective bargaining and contract negotiations.


*A constitutional amendment that would have enabled Illinois to impose different rates on different levels of income is now sine die.


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