A new poll of employers, mostly large ones, shows that they are worried their employees won’t be able to retire because workers are not saving enough and financial markets are unstable. I don’t want to be impolite to these employers — they cared enough to respond to a survey — or to the excellent organization that did the survey — The Society of Human Resource Professionals — but my response is, “Duh.”
Only 50% of employees have a pension plan at work and most of these plans are the Do–It -Yourself, 401(k)-type plans in which people decide how much to save, when to save, and what to invest in. Even if workers do save enough and invest well enough, many people withdraw money before they retire.
In fact, The New York Times’s editorial page admitted yesterday that 401(k)s don’t work. And I agree with the editorial.
What is good pension reform? The New York Times calls for the government to guarantee a basic return in 401(k)s. A guarantee is good, but not a guarantee of private 401(k)s. Think for two seconds. With a guarantee I’ll put my 401(k) in hedge funds and swamp land; if I make it big I get rich, if I don’t I get the guarantee. One good way a guarantee could work is if the government manages the investments. After all, the government invests pension money all the time — for federal employees, for Federal Reserve Bank employees. College professors in TIAA get guarantees, but TIAA-CREF guarantees the return because they make prudent investments that TIAA-CREF controls. The government can best and safely guarantee individual pension accounts if professional, government-controlled, trustees invest the money.
President Obama proposes nudging workers without pension plans in a voluntary IRA: employers and workers do not have to contribute to them. Pension reform based on voluntary contributions is DOA. Voluntary pensions have already failed. Would Social Security work if FICA taxes were voluntary?
7 Responses to More Retirement Woes
rbrunson - August 26, 2009 at 5:30 am
Government guarantees of pension benefits has several challenges besides being bad policy. First on the list is the fact that, in fact, the government is a poor manager of whatever it touches. This is most likely due to there being no profit incentive. Whatever the reason, we need look no further than Fannie, Freddie, VA Medical Centers, the Post Office, and the bankrupt social security system as evidence.Second, it is neither the role nor the responsibility of government, in a free society and representative republic (NOT democracy) to provide income guarantees of any kind to its citizenry. If we lived on the plantation, as so many do in Europe, and as we appear to be headed in this once great country, we would expect to be taken care of. All we need to give up is our freedom, which we appear to be willing to do.Finally, any guarantees as referenced steal from the citizens of this great country. More than anything, these guarantees steal freedom of choice. They also rob citizens of the opportunity of having to learn to think and plan for themselves. Most citizens have the ability to do this, though many don’t exercise these abilities, since elected officials, in the name of caring, have purchased their vote with a variety of guarantees and handouts.According to Victor Frankl, in his most excellent book “Man’s Search for Meaning”, suggested that this freedom of choice to make our own decisions was one of the last freedoms we give up, as we move to a totalitarian state.
usaret - August 26, 2009 at 9:29 am
rbrunson makes some interesting points. Some questions for him: could the citizens of a “representative republic” simply vote through their legislators to create a pension plan like the one Teresa suggests? After all, we already did so with the enactment of Social Security, which provides the sole retirement benefit for over half our population. Another question: in the absence of real, substantive, living wages for about a third of our working population, how else will we ensure the lives of those too old to work? Do we simply, in the name of “freedom,” let them die? rbrunson’s examples of things not working well, I note, does not include banks, insurance companies, automobile manufacturers and the like who’ve had to go hat in hand to the government to bail them out. Interesting how easy it is to point to failures of government when the failures of private sector firms is stunningly unremarked.
goxewu - August 26, 2009 at 9:43 am
“Whatever the reason, we need look no further than Fannie, Freddie, VA Medical Centers, the Post Office, and the bankrupt social security system as evidence [of poor management].”And we need only to look at the banks, the mortgage lenders, big insurance companies such as AIG, and, of course, the automakers, to see how well caitalism runs things. (The vision of a wounded veteran filling out forms for Acme Health Insurance, Inc., and presenting its card to a for-profit administrator who disqualifies him or her on the basis that the amputated leg is an exclusionary pre-existing condition, or, in the best-case scenario, hobbling from doctor to doctor to see who’ll accept Acme, is an especially repulsive eventuality of unfettered capitalism.)”Second, it is neither the role nor the responsibility of government, in a free society and representative republic (NOT democracy) to provide income guarantees of any kind to its citizenry.”To take the minor point first, this hairsplitting of “representative public” and “democracy” is exactly that, hairsplitting. People democractically elect their representatives, and countries which practice this system are generally called “democracies.” The major point, about no income guarantees under such a system is, “Who says so?” “Income guarantees” (including food stamps, Medicare, welfare, unemployment benefits, etc.) actually help democracy–or “representative republics”–by helping its citizens to vote with minds functioning on full stomachs and with roofs over their heads. If the representatives in a representative republic choose to enact such “income guarantees,” well, that’s the way the republic bounces.”More than anything, these guarantees steal freedom of choice. They also rob citizens of the opportunity of having to learn to think and plan for themselves.”"Opportunity” is such a clever, patronizing word. In the shell game that is contemporary capitalism (there’s a reason why the class of people who move money around and skim off the top get the multimillion-dollar bonuses and the class of people who work on better mousetraps are fractionally compensated), the lost “opportunity to think and plan for themselves” is not generally missed by ordinary families whose work schedules don’t permit them to spend their non-existent spare time day-trading in order to make up for their 401k’s tanking in the recent money-movers’ debacle. Or to “choose” the doctor who’ll accept their byzantinely configured health insurance (provided they’ve no pre-existing conditions, natually).”…this freedom of choice to make our own decisions was one of the last freedoms we give up, as we move to a totalitarian state.”Yep, Social Security and Medicare are the first steps on the road to Hitler or Stalin. This is but a variation of the same bunk with which the likes of rbrunson have been trying to scare the poor and working class into accepting their lot at the bottom of the barrel of as-unfettered-as-possible capitalism since Dickens’s day.
calfrye - August 26, 2009 at 10:54 am
“in fact, the government is a poor manager of whatever it touches.” This is a statement of faith, and as such isn’t a valid comment in a reasoned discussion. Fact is, there are examples when government employees are very good managers, perhaps when their motivation is not for monetary gain but from passion for the program. Many volunteer and non-profit organizations operate from the same motivational sources. Such comments are most interesting in this context, as so many of us are employed in the non-profit sector. Are our state and non-profit colleges and universities also “poor managers of everything they touch?”An important qualifying factor in the management by governmental or non-profit administrators is the degree to which they are insulated from political influences by the legislators or boards of trustees behind them. The Federal Reserve operates as well as it does by virtue of being independent of Congress.Conversely, Fannie Mae, Freddy Mac and the rest were created as Frankenstinian hybrids of public/private enterprises, a decision based not in good management but in the same misplaced belief in the ineptitude of government. You can’t have it both ways, frequently you just receive the worst of both worlds.
jung_gt - August 26, 2009 at 10:59 am
As Janis Joplin sang, “freedom’s just another word for nothing left to lose.” The loss of freedom is a common refrain among those opposing Social Security, Medicare, government-run health insurance, etc. Such people, I suppose, yearn for the days before Roosevelt’s New Deal. But what was life really like back in those days? What happened to the old and the infirm in poverty? Did “freedom” in the lack of government services, pensions, health care eliminate poverty? Does “freedom” mean that the poor and the infirm somehow deserve their fates? Is it really OK to let such people be cast off, ignored, suffer and die out of sight and out of mind?Or were these social programs (reviled as socialism by some) enacted because “freedom” did not result in the kind of society we want to strive for?
cwinton - August 26, 2009 at 11:40 am
“If we lived on the plantation, as so many do in Europe”? I recall a conversation I had with a cabbie in Oslo who told me about his annual August vacations in US sunbelt states, where he enjoyed basking in the heat, drinking beer, and pigging out in the all you can eat places. I think a lot of our common citizenry would like having the freedom to be on that kind of plantation.
11152886 - August 27, 2009 at 9:35 am
TIAA/CREF does not guarentee a pension. The fund is composed of investments. If a person selects TIAA annuity, yes there is a guarenteed return, but at what cost and no cost of living adjustment? If one selects CREF stocks in order to get growth and the market tanks, there isn’t much future there, either. Finally, if the adivsors aren’t very good or non-existant, one can have a serious problem. All these plans like to collect their money, with TIAA/CREF probably least expensive, along with Vanguard, but don’t kid yourself about guarentees or decent advice when the time comes for the payout.