If some people are to be believed, there was a time between the 50s and 70s when all American workers had pension benefits so generous that upon turning 65, they could take their golden watch and live with no worries in Florida and spend the rest of their days playing golf and fishing.
This report from the National Public Pension Coalition claims as much:
During the postwar economic boom, defined benefit pensions represented the closing chapter of a solid middle class life. The American dream was a steady job with a middle class salary, decent benefits, and the promise of a pension in retirement.
This is a common claim, and one that is frequently repeated, usually with little fact checking. Ironically, this same report, in the few paragraphs above, does a great job of demolishing the idea of a pension golden age.
During the 1950s and 1960s, private sector pension plans were largely unregulated. This sometimes led to unfortunate consequences when businesses closed down. The most notorious example was the closure of the Studebaker Company in 1963. When the famous automobile manufacturer shut down its plant, it did not have the money to pay promised pension benefits to its former employees.Throughout the 1960s, the U.S. Senate conducted numerous hearings on corporate pension plans and
union benefit funds. Though a number of bills were introduced, no major legislation affecting private sector pension plans was ever passed.
In September 1972, NBC aired Pensions: the Broken Promise, a television special that examined the consequences of poorly funded corporate pension plans. This spurred more congressional hearings and legislation around pensions. Eventually, Congress passed the Employee Retirement Income Security Act, which President Ford signed into law on Labor Day in 1974. ERISA, as it is commonly known, was a landmark piece of legislation affecting the retirement security of working families.
A cursory glance of news reports from the 1970s shows a littany of horror stories about pensions being underfunded and mismanaged with tragic consequences for their beneficiaries. The 1963 Studebaker incident was an especially potent symbol. The lucky workers got just 15% of their promised actuarial benefits, the rest got nothing.
Even for those whose employers were more competent, pensions were not a ubiquitous benefit. The vesting requirements of 5-10 years meant lower paid employees who switched jobs more often got nothing. In 1980, just 43% of workers had a pension. For those who did have a pension, it was not a huge source of security. In 1975, just 15% of the income for those over 65 came from pensions. In that same year, just 25% of those over 65 reported any pension income. This peaked in the early 90s when just under 40% reported it. Then, as now, the true source of retirement security was from Social Security. Pensions, just like today’s 401Ks, were a perk reserved for the upper and middle classes.
Now, I’m sure that the comments in this post will be littered with stories of how grandpa was able to retire comfortably on his company pension. But, as they say, the plural of anecdote is not data.
As we see here, today’s seniors have never had it so good. And it’s likely that tomorrow’s seniors will have it even better (assuming we fix Social Security’s funding gap). Their poverty rate is substantially lower than it was during the so called pension golden age.
If we want to further improve retirement, the best way is to created a minimum poverty line benefit for Social Security. It is not to harp on a golden age of corporate pension plans that never existed.