Bolstering Call to Expand Social Security, New Reporting Reveals How Corporations Are Offloading Pensions
Cashed out my 401k pension and got a second mortgage years ago to ensure my kids graduated from college debt free. The exploding cost of college meant the money we started saving when they were children barely covered the cost of the oldest kids first two years. The wife and I now live on my $1000/month SS check, not out of laziness or poor planning, but being overwhelmed by the high cost of college and our stupid(?) sense of responsibility to provide for the kids we brought into this world. Not sure what my wife is going to do when I die as she is not eligible for survivor benefits. Welcome to the new middle class.
Social Security has been important for decades because most defined benefit pensions have been long gone. Now it will be important if we can get a blue congress to reverse the elimination of the Social Security ‘restricted application,’ taken away in recent years budget negotiations. In my case it means the difference between getting by and being an indigent. Senators from my state…Cornyn and Cruz…both said they stand up for their citizen’s retirement but are entirely silent when this is brought to their attention.
“New Reporting” ? This has been going ever since the advent of 401k programs nearly four decades ago.
All of the corporations that I worked for from 1985 through 1998 were starting 401k programs and dumping their defined benefit pension plans, some just for new employees, but in most cases for all employees.
People forgot that the 401K law was one of Reagan’s first steps to impoverish the middle class, all part of the plan to disempower the working classes. The corporations loved it, as it was seen as the go-ahead to begin ending defined pensions and begin eliminating other benefits as well.
We now have a nation where less than 20% of companies even have pension plans, and most of those are already grandfathered, as no new employees for the last 30 years have been able to participate, as it’s been closed to them, and will go away when the oldest current employees retire.
Mix that fact with the other, that almost half of retirees are living on social security payments alone, and you see why the fastest growing demographic of people in poverty are the aged.
Is this going to be another business horror, like Enron? When they crashed, none of those retired people had any pension money anywhere.
I have one just as sneaky. A company I worked for stopped their defined benefit pensions and switched to profit sharing. Low and behold all of a sudden there were no profits to share. So we were told.
Quick get rid of the snakes in DC and around state capitals and local governments before they throw us all under the bus.
Lucky for me so far that is I never trusted anyone else managing my money, NEVER. I on the contrary cashed out all my 401Ks to pay down on homes we’ve bought over the years. I told all my kids that I’ll help them with part of their tuition but then they’d have to learn the ropes to get grants and scholarships. I thought as I did myself that they don’t have to finish in 4 years but might have to work and do part time school which they did successfully.
See the fucking banksters keep track of our money our spending habits and even where we go on the internet, trust me they do all of that routinely. So when they see you have a chunk of money in your savings account they concoct ways to get at it. That happened to school teachers and millions of other pensioners just a few years ago and will happen again and again if we keep trusting the banksters. And especially now that the banksters and all sorts of other crooks are running our government for us. Hahaha how fucking stupid is that for all us Americans.
Cruuuuuzzzz, wow that bastard is a multi headed snake
The “Chilean Miracle” of a fully Privatized pension scheme which was introduced by Pinochet under direction of the boys from the “Chicago School of Economics” is still cited today by right wing talking heads as an example of how well a pension scheme can do without the need for Government.
Do not read that Press. It all a big lie as witnessed by one the largest protests in Chile in History against that system. The people were promised 70 percent of pre retirement income to replace lost wages when they did retire under this scheme. Most are lucky to get 30 percent. The huge number of dollars is controlled by a few brokerage house which are making a killing profit wise off this.
Supporters of the system will cherry pick data to make it look better then it is . As example they will state “if you saved a significant portion of your income each and every year in this system you will see tht 70 percent replacement” when the fact is most of the people who will NEED that money to retire do not have those extra dollars to save every year. They live paycheque to paycheque. The ones doing ok by this are the upper middle class and the already wealthy who have the extra income to put into these funds each year. This is just like the systems here in Canada (RRSP) and those 401K plans in the USA. They work FOR people with higher incomes.
Any system of Social security must not be designed so that it favors the already rich and punished the poor.
Everyone in this country COULD have a defined benefit pension that would be guaranteed, efficient, non-profit and enough to live on. It already exists for employees in one industry. Railroad Retirement covers hundreds of thousands of railroad workers and retirees in the U. S., and has since the 1930’s. Accumulated contributions are totally portable between railroad employers by employees. It is controlled by a government-administered, but independent board, that is insulated from employers, so employees cannot be denied their earned benefits for any petty reason, like being fired “for cause”, or by a railroad going bankrupt, or taken over by vulture capitalists to be bled for short-term profit. It is a pay-as-you-go system like Social Security, with two tiers, a SS-like base benefit, and a private pension-like second tier, both paid for by employer/employee taxes at the same annual income ceiling as Social Security, although the rates paid by both in taxes are somewhat higher to get a higher pension payout. It is invested in “safer” investments, is solvent, and not in danger of running out of money anytime soon.
There is no good reason, other than political will, that every worker in this country could not be covered by such a plan, regardless of their occupation or employer. Between a plan like this, a much higher minimum wage, free college tuition and national single-payer health care, the lives of most people in this country would be greatly improved. However, our corporately bought-and-paid-for politicians of both major parties will never be allowed by their corporate masters to give those things to the rest of us.
In essence the way the Corporations and the 1 percent see this is every dollar going to a person in the way of pensions, is a dollar not going into their pockets. Mr Bezos is not the richest man in the world because he needs 100 billion dollars. He the richest man in the world because he has no issues whatsover with an elderly person sleeping under a bridge just as long as Bezo can turn that 100 billion into 200 billion.
Social In-Security started to put recipients below the Poverty Line during the Reagan Years when they eliminated important items from the Cost of Living Index with the help of Democratic Speaker Tip O’Neill.
Under the Guise of Social Security is going Broke Reagan, who hated this program and referred to it as a Welfare Plan, successfully eliminated as many benefits as he could get passed Congress.
W tried to privatize the program but was stopped by Nancy Pelosi.
The Republicans have never stopped trying to destroy this forced Savings Plan and there is no Hope whatsoever that it can be improved until Progressive Democrats Like BERNIE take control of the reins of Government.
Calling for Expansion of Social Security while Trump is in the White House and Mitch controls the Senate is a complete Exercise in Futility.
Actually, 401(k)'s came in during Jimmy Carter’s years (1978), and companies have been getting rid of pensions since ERISA was passed in 1974. It was another of the great “unintended consequences” moments. With all the additional regulations and costs created by ERISA, companies began looking for ways to get rid of their pensions because ofthe cost of administration complying with the new rules. It just became another Full Employment Act for lawyers and consultants.
I don’t buy that theory at all considering that
- administrative costs are not really that high - and can be paid from plan assets so they are not an additional expense to the employer
- ERISA does not apply to churches and to governmental entities - yet there has been a similar move away from defined benefit pensions in those cases as well.
A much more logical theory is the one you are criticizing - the fact that businesses simply want to save money on this benefit. That is far more logical, especially since the rise in health care costs over the years has made companies want to save on benefits in other areas (the data show a steady decline in the percentage of business income that goes to retirement funds - which again goes against your ERISA administrative costs theory). Companies simply want to shift cost/risk from themselves (under defined benefits) to their employees (under defined contributions).
For me there’s another important contributor …
The idea of life-long work at a single company that was a mainstay for people in the World War II generation has been completely eliminated in this new era of the “gig economy.” This has made portable retirement saving systems more important and defined benefit pensions do not easily fit that mold.
Dennis, I was already working in the tax field when ERISA came in. I saw many smaller companies eliminate their pensions because they threw up their hands and said “this is too much work”. And I’m not saying companies aren’t looking to reduce costs - every company is always looking to reduce their costs.
As for the comment “(the data show a steady decline in the percentage of business income that goes to retirement funds - which again goes against your ERISA administrative costs theory)” this is not necessarily so, since any company that eliminates it pension (for whatever reason) is reducing the percentage of business income that goes into pensions - whether it’s because of overhead, or any other reason.
The Postal review board should insist that since they have been required to pre-fund retirees 75 years out into the future, that no one can privatise the Postal Service until those funds have been used.
Sorry - but your anecdotes don’t beat actual data. The Federal reserve tracks the employer contributions to both defined benefit and defined contribution funds and the total as a percentage of corporate income has definitely gone down in the last thirty years. (Note that my point was about the percentage of income going into retirement costs - not just into defined benefits programs - obviously there’s been a lot of defined benefit programs closed over the years).
The key issue you are ignoring is the cost of risk. The ERISA actually actually reduced pension risk and so the minor irritations you claim about administrative costs were balanced by that. But you just can’t show me any data indicating the ERISA was a key factor in the reduction of defined benefit plans over the years.
The median employee tenure at the time of retirement and the percentage of people who stay with a single company for their whole career has been has been drastically cut over the last 30 years. That is the main reason why employees have preferred portable defined contribution plans over defined benefit plans that typically take five years to be vested. Meanwhile employers want to shift risk to their employees and avoid excess benefit costs. The ERISA just hasn’t played a big role.
Dennis, No one is arguing that contributions haven’t gone down. In large part, because companies have abandoned DB plans.
And no one is ignoring the cost of risk transferrance - DC plans put the risk on the employee, DB plans put it on the employer.
ERISA reduced the risk to the employee, but increased the cost to the employer - in terms of pension insurance, how quickly employees had to be covered, who had to be covered etc. As a result, more and more employers chose to abandon DB plans - because of the increased costs imposed by ERISA. Some of those costs are direct - i.e., PBGC premiums, increased actuarial costs, additional filings. Other costs are less direct - e.g., faster coverage (pre-ERISA it was not uncommon to have 10 year vesting - ERISA mandated 5 or less), minimum benefit formulas (many plans pre-ERISA only covered compensation in excess of the Social Security wage base). Bottom line, companies that maintained a DC plan saw their costs escalate, and chose to either terminate the plans or freeze them. If their costs went down, do you think they would have gotten rid of the plans?
The first several years I was in practice, the majority of my work was unwinding DB plans as a consequence of ERISA. After 3-4 years of that, there wasn’t as much call for it, because most of the smaller companies had stopped offering them. You may call it “anecdotal”, but I call it history.