OP-ED | The 401(k) Failure Is An Inconvenient Truth
Once upon a time, there was retirement security . . .
If that sounds like the opening of a fairy tale, it’s not. More and more, it’s the story a new generation of workers is telling their children about a time when a majority of Americans had retirement pensions.
The fairy tale is, however, becoming a nightmare. In cities and states across the nation, corporate-backed politicians have stepped up efforts to usher in a new era of uncertainty for working class folks — and big profits for Wall Street — by doing away with real pensions and replacing them with risky “defined-contribution” savings plans, like 401(k)s.
To which I say: buyer beware.
Look no further than a recent Wall Street Journal article in which the creators of the 401(k) now regret the “revolution” they helped spawn. There’s Herbert Whitehouse, a human resource executive for Johnson & Johnson, who was among the first to champion 401(k)s back in 1981.
Today, Johnson said he can’t retire until his mid-70s because of the hit his 401(k) took in the 2008 financial meltdown. “We weren’t social visionaries,” he told Journal reporter Timothy Martin.
“I helped open the door for Wall Street to make even more money than they were already making,” said benefits consultant Ted Benna, who, according to Martin, is known as the “father of the 401(k).”
And there’s Gerald Facciani, a former head of the American Society of Pension Actuaries, who said to Martin, “The great lie is that the 401(k) was capable of replacing the old system of pensions. It was oversold.”
Whitehouse, Benna, Facciano and others are finally acknowledging an inconvenient truth: 401(k)s were never designed to be the primary retirement savings vehicle for working families. They were supposed to be a supplement to retirement savings through Social Security and a traditional defined benefit pension.
Instead, 401(k)s became one of Corporate America’s tools — a Trojan Horse, you could say — for demolishing the retirement security of workers everywhere. The rise of 401(k)s, coupled with the decline in real pensions, has fueled a retirement savings crisis in the United States that’s hit middle and lower-income wage earner particularly hard.
A 2016 Associated Press article lays out the facts of a retirement savings crisis fueled by the shift away from defined benefit pensions and toward defined contribution savings plans. Around thirty-five percent of working-age families have nothing saved for retirement; among those who have anything saved, most barely have enough for one year’s worth of retirement.
Real pensions, thankfully, are still around, but under sustained attack. In our own increasingly fact-free state, organizations like the Connecticut Business & Industry Association and the Yankee Institute for Public Policy would have you believe that pensions, especially in the public sector, are a curse on the economy.
Blaming workers for having retirement security is as easy as it is cowardly, because it distracts the people from the real issues — like restoring taxes on the ultra-wealthy and closing huge tax loopholes that benefit big corporations.
The blame-the-workers-and unions game also clouds an incontrovertible argument: Pensions, like the average $36,000 annual retirement for state employees, are good for the economy.
Last year the National Institute on Retirement Security assessed the economic impact of public pensions in all 50 states. For Connecticut, NIRS reported that expenditures stemming from state and local pensions supported 33,792 jobs that paid $1.9 billion in wages and salaries; $5.4 billion in total economic output; and $1.3 billion in federal, state, and local tax revenues.
Connecticut lawmakers should take note. As a matter of public policy, it makes far more sense to recognize the value of defined benefit pensions and figure out ways to provide more working families with access to those pensions and a secure retirement.
Take it from the aforementioned Herbert Whitehouse, now 65 and working as an attorney for a chain of wine and spirit shops in Florida.
“A pension,” he told the Wall Street Journal, “is pretty valuable.”
Sal Luciano is Executive Director of Council 4, a union representing 32,000 workers. Council 4 can be reached on Facebook and through its Campaign4MiddleClass on Twitter @C4MC. Sign up for email updates from Council 4 here.
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