The death of the American pension: Shifting the retirement burden from employers to workers has created an enormous financial crisis.
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The American pension offered once by many companies was a benefit once afforded to most workers. That is, until the press started chanting the Wall Street party line and all of a sudden 401ks and mutual funds were all the rage. Who wants a tiny pension when you can become a millionaire by simply saving a few dollars per month? Well this experiment started in the early 1980s and here we are, one full generation into the plan and most Americans are entering retirement on the verge of being broke. And this is with the stock market recovering from the lows of 2009. Yet somehow, many Americans never had enough left over to invest after the bills were paid. It is interesting how the pension has been painted as some evil sin while corporate CEOs have ridiculous pay packages that would make Marie Antoinette blush. That is the environment we currently live in. Worship the financial gods while everyone that is poor or struggling is somehow a pariah. Corporate welfare for the connected and painful austerity for the working class. The pension has undergone a slow and painful death at a time when millions of baby boomers are retiring.
The slow death of the American pension
Pensions were very common even in 1980:
“(Third Way) The critical point is who bears these risks. Workers shoulder all the risks in a DC plan while these risks are shared in DB plans between workers and employers. This is a key point because since the 1970s DC plans have become the dominant retirement plan type. In 1980, more than 148,000 DB plans covered 30 million active workers (38% of the workforce), but by 2008 just over 48,000 DB plans covered 18.9 million American active workers (13% of the workforce). Over the same period, the number of DC plans increased from 340,850 to 669,156 with an increase in active workers covered from 14 million (14% of the workforce) in 1980 to more than 67 million (46% of the workforce) in 2008.15 Figure 2 below shows the percentage of the American workforce covered by DB and DC plans since 1975.”
38 percent of the workforce had access to a pension in 1980 and now it is down to 13 percent as of 2008. But this has trended even lower over the last seven years as the crisis has given more pretext to companies to chop benefits. This trend has come in multiple forms. One way for employers to save money is on cutting pensions and shifting the retirement burden to employees. This was ushered under the guise of helping out workers. Well here we are 35 years later and the plan has been an abject failure. This has ushered in the new retirement model of working until you die.
Most retirees are now fully reliant on Social Security. This has become the default “pension” option. Keep in mind that the plan was to have three major sources of income for retirement: pensions, Social Security, and your own retirement savings. What ended up happening is that most Americans now fully rely on Social Security alone since pensions are becoming extinct and with a low wage employment revolution, many have a tough time saving for retirement.
Another source where you can see this trend in healthcare costs:
Many employers have shifted the cost burden to employees. The burden to employers has also risen. In the end, it is the worker that is shouldering the rising costs of healthcare but also with saving for retirement. This brings up an odd calculus: wages are stagnant and living costs are rising yet somehow, workers are to save more for retirement. Yet they were already having a tough time when wages were rising let alone in a climate were wages are stagnant.
Unfortunately this is coming under the umbrella of a race to the bottom with wages. You always hear corporate CEOs talking about pressure from abroad with wages but look at their own pay:
Interesting that in 1980 CEOs earned about 29 times the pay of the regular worker, right at the time that the death of the pension started. Today, with all the talk of tight budgets CEOs are earning 300 times the amount of the typical worker. They don’t have to worry about pensions. Ironically even in this time, CEOs have access to incredibly robust pension plans on top of stellar pay:
“(USA Today) The gap between CEO retirement benefits and the nest eggs of average U.S. workers is even wider than the imbalance between compensation for the highest- and lowest-paid employees, a report issed Wednesday shows.
The 100 largest U.S. CEO retirement packages are worth a combined $4.9 billion, equal to the entire retirement account savings of 41% of American families, according to the report by the Center for Effective Government and the Institute for Policy Studies watchdog groups.
The CEO nest eggs on average are worth more than $49.3 million, enough to produce a $277,686 monthly retirement check for life, the report said.”
Yet the pension for the typical worker is a grievous sin against humanity. Just look at the data above. This is part of the corporatocracy system that has a deep captured over our financial infrastructure. It is no surprise that the pension system is dying a slow death and the press is cheering it on. Don’t you know that everyone is just a temporarily embarrassed millionaire?