I happened to see a cartoon recently in which one person says to another, "My 401(k) feels like a 201(k)". That is, indeed, one of the other, less-talked about facts that many people are facing in the more-visible credit-crisis gripping our economy. You would think that that reality would force a serious rethinking of the foolishness of the 401(k) system and the "opportunity society" mantra. But, you would be wrong--at least if you observed the debate in political and elite circles.
Don't be distracted by the market's temporary rally yesterday (indeed, the Dow is down 47 points just before 10 a.m. today)--The Down finished March down 7.6 percent from where it started the year--its worse quarter in almost six years.
In yesterday's Wall Street Journal, there was a beginning of a reality-check, with a front-page article entitled "Americans Delay Retirement as Housing, Stocks Swoon":
A three-decade veteran at International Business Machines Corp., Dick Boice had planned to sell his house, pack up and move to Arizona with his wife, Lauren, to take early retirement. But two months after the January date he set to exit the work world, Mr. Boice, who is 59 years old, is still on the job. He figures he'll stay put for another couple of years.
The Boices had counted on proceeds from the house sale to boost their retirement income. After a year on the market, the roomy colonial in Blue Springs, Mo., didn't move, forcing the couple to cut the asking price by $40,000 to around $250,000. The house remains unsold. Meanwhile, Mr. Boice has watched the value of his 401(k) and individual retirement accounts fall by roughly 20% so far this year, to a combined $240,000.
And...
With their homes worth less, fewer people feel confident enough to retire, even if they plan to continue living in them. And unlike younger workers, they don't have years to make up for downturns in the stock market. As a result, they worry that their investments will diminish to the point that they won't have enough money to get through retirement.
And...
Over the past three decades, the 401(k) plan has gradually supplanted pension plans as the main source of retirement coverage for U.S. workers in the private sector, according to the Employee Benefit Research Institute, a nonprofit group. In 1979, it says, 62% of U.S. employees participated only in a pension plan. By 2005, 63% of workers reported that they participated only in a 401(k) plan.
Another big motivation for older workers to stay on the job: scarce health benefits for retirees. Between 1988 and 2007, the percentage of large companies offering retiree health benefits fell by half, to 33%, according to the Kaiser Family Foundation.
Now, The Journal article doesn't take the next step, which would be to argue that 401(k)s have been a failed strategy to insure a decent retirement, that really what 401(k)s did was simply shift the shared responsibility for retirement, from corporations and the workers who made the profits of corporations possible solely on to the back of workers, and, finally, that the decline in the power of unions can be directly tracked to the worsening ability of broad numbers of people to leave work and retire with dignity.
Not too long ago, I organized a panel on pensions. There was a deep discussion about defined contribution plans--that would be a 401(k)-like "pension" where what is put into an account is a certain amount of money but you have no idea what you will actually get when you retire--versus defined benefit plans--which is a plan that says "here is what you can expect when you retire."
At the panel, Damon Silvers, associate general counsel of the AFL-CIO and a real expert on the issue, had these facts to chew on:
* Only 21 percent of private sector workers have a defined benefit pension plan, 29 percent have only a defined contribution plan, 50 percent have nothing.
* The median 401-k plan balance in 2003 was $18,000, the average was only $51,000. Remember, the average will be pulled up because the top ten percent of income earners have the ability to put in the extra $10-$15,000 at the end of the year, while most wage earners are deeply in debt. Translation: if you've got a 401-k, you are screwed.
* Median 401-k account balances for workers between 55 and 64 was $61,000 as of 2004. Translation: if you are headed for retirement, you are in trouble.
* If current trends continue, we are heading into a period when income for retired Americans falls for the first time since the Depression, just when retired Americans are becoming demographically and economically dominant.
A related point is the continued nonsense being regurgitated about Social Security--it is nonsense that undermines the notion of a defined benefit because Social Security is a defined benefit. If we're constantly being told that Social Security is not something that people can count on--and most Americans under 50 think just that, thanks to political rhetoric and the media's foolish treatment of the topic--then, people begin to believe that they are on their own.
In fact, the chance that people won't see Social Security is about the same chance that you will be Elvis' love-child: close to zero. The system is more sound than it has been over most of its history and, as my colleagues Mark Weisbrot from the Center for Economic and Policy Research puts it, "Social Security's projected shortfall over the next 75 years is less (as a percent of national income) than what was fixed in each of the following decades: 1950s, 1960s, 1970s, and 1980s." So, get over it.
So, besides the overall in financial regulation that seems all the rage today, I'm hoping that maybe we can get a sane and honest look at our retirement system. And build back into the system a sound retirement that ceases to put an individual's ability to live in dignity at the mercy of the morons on Wall Street. If, as has been said, we evaluate our society based, partly, on how we treat our older people, we better get with it and toss over bankrupt (literally and figuratively) ideas for some economic truthiness.