In America, the very notion of a relatively safe and secure retirement is under relentless attack, and much of this broadside is coming from well-monied corporate interests, aided by supportive far-right politicians.
This is not by accident. Only when you connect the dots do you see a unifying force, and it’s very, very political. We haven’t been comprehending how the pieces come together because, frankly, concerns about America’s retirement funding crisis tend to be examined in silos, such as (1) Social Security; (2) public employee pension funds; and (3) 401(k) balances.
I’ve written a lot about the retirement funding crisis on this blog, but I’ve never pulled together some of the interrelated political threads. Here’s a start:
1. Attack on Social Security
Let’s open with the attack on Social Security. In reality, Social Security is among our most stable benefit programs. Although some of the concerns about the future stability of Social Security are legitimate, a relatively easy fix — raising the cap on payroll taxes that fund the program — would go a long way toward ensuring its long-term viability for generations to come.
Dave Johnson, in a piece for the Campaign for America’s Future, traces the ideological roots of the fanatical attack on Social Security:
In 1983 a couple of conservative “think tanks” developed a step-by-step plan to privatize Social Security, for the benefit of “the banking industry and other business groups.” The plan describes a strategy to convince people that Social Security is going broke and that it is a “Ponzi scheme,” to undermine confidence in the program and lead people to accept that it needs “reform.” The plan outlines methods to “neutralize” opposition. The plan involves a smokescreen strategy of saying things to distract people from seeing what they are doing.
This strategy for attacking Social Security was spelled out in a 1983 document from the Cato Institute (previously named the Koch Foundation), with Heritage Foundation input. You can read the original document for yourself, it is titled Achieving A Leninist Strategy. Please, if you have time, read the entire document (in particular the section “Weakening the Opposition”) to understand the strategy that has been unfolding in the years since . . . .
To far-right zealots, there is nothing more objectionable than a government-sponsored program that is working. Such is the case with Social Security, and hence the virulent efforts to destroy it and the support it provides to millions of retirees.
2. Corporate role in sabotaging public sector pensions
Stories about severe underfunding of America’s public employee pension plans are now becoming a daily occurrence in the media. As Matt Taibbi writes in a major piece for Rolling Stone magazine, this is pitting “private-sector workers who’ve mostly lost their benefits already against public-sector workers who are merely about to lose them.” A more insightful inside story, Taibbi suggests, is how Wall Street has looted public pension funds:
One of the primary reasons why public sector pension programs are so underfunded is that they fell prey to those who invested pension monies into the Wall Street casino, and they accordingly lost billions when it fell to pieces five years ago . . . .
It turns out, according to Taibbi, that the massive underfunding of public pension systems has been “caused almost entirely by the greed and wide-scale fraud of the financial-services industry – particularly with regard to state pension funds.” He continues:
. . . In February 2011, [economist Dean] Baker reported that, had public pension funds not been invested in the stock market and exposed to mortgage-backed securities, there would be no shortfall at all. He said state pension managers were of course somewhat to blame, but only “insofar as they exercised poor judgment in buying the [finance] industry’s services.”
In fact, Baker said, had public funds during the crash years simply earned modest returns equal to 30-year Treasury bonds, then public-pension assets would be $850 billion richer than they were two years after the crash. Baker reported that states were short an additional $80 billion over the same period thanks to the fact that post-crash, cash-strapped states had been paying out that much less of their mandatory ARC payments.
3. The 401(k) retirement “system”
Lynn Stuart Parramore, in a piece for Alternet, writes about who wins and loses when 401(k) accounts supplant pensions as a primary source of retirement funding:
Thirty years ago, as laissez-faire fanaticism took hold of America, misguided policy-makers decided that do-it-yourself retirement plans, otherwise known as 401(k)s, would magically secure our financial future in the face of gyrating markets, economic crises, unpredictable life events, stagnant wages and rampant job insecurity.
. . . There were red flags along the way. 401(k)s were originally supposed to supplement pensions, but clever corporate cost-cutters decided that voluntary individual accounts would replace them.
. . . Reality check: . . . . (T)he financial crisis destroyed America’s retirement fantasy. . . . Today, the balance in our retirement accounts falls wildly short of what we need to keep us from destitution in old age, much less to secure a comfortable existence.
To fill in the details, Parramore summons data from a new Economic Policy Institute Retirement Inequality Chartbook that provides “dozens of charts that examine retirement preparedness and outcomes by income, race and ethnicity, education, gender and marital status.”
Earlier this year, the National Institute on Retirement Security, a non-profit, non-partisan research and education center, released a 28-page study, The Retirement Savings Crisis: Is It Worse Than We Think?, by labor economist Nari Rhee, which lays out the alarming data. Here are the major findings:
New NIRS research finds retirement savings are dangerously low, and the U.S. retirement savings deficit is between $6.8 and $14.0 trillion.
…The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households.
The findings confirm that the American Dream of retiring comfortably after a lifetime of work will be impossible for many. Based on 401(k)–type account and IRA balances alone, some 92 percent of working households do not meet conservative retirement savings targets for their age and income. Even when counting their entire net worth, 65 percent still fall short.
The role of individual thrift
All too often, the retirement savings crisis is described as the cumulative result of individual failures to save money. To be sure, many people in a position to save could have done, and could be doing, better in terms of personal savings levels. Too much of America’s “prosperity” has been built on buying stuff we don’t need, financed by easy credit.
But the easy credit has been extended, like cheap crack cocaine, by those who want to get us hooked early and deeply. Furthermore, the disappearance of pension plans, the flattening of personal income, high unemployment, and growing inequality of wealth in society are significant, contributing factors toward this individual “failure” to save for retirement.
Increasing, not decreasing, Social Security payments and the creation of public pension systems for all are among the fixes that have been floated by policy experts in retirement funding.
But before we can get to these policy solutions, we must educate ourselves as to what and how this happened. We need to understand how we got to such a precarious, frightening place where Teresa Ghilarducci, one of the leading authorities on this subject, believes that “most middle-class Americans will become poor or near-poor retirees.”