The gap between the retirement ‘haves’ and ‘have nots’ has grown since the recession.


Economic Policy Institute:

Over the past generation of economic life, the U.S. economy undertook a grand experiment in making defined-contribution (DC) pension plans such as 401(k)s, often financed directly by workers’ savings themselves, the primary vehicle of private retirement security. This experiment has decisively failed. Overall pension coverage has not increased, and fewer Americans are in defined-benefit (DB) plans (think company pensions). The DB plans crowded out by DC plans were more secure, providing a guaranteed income for life that was not subject to the vagaries of the stock market. They were also much more equal than DC plans because they were employer-funded and participation was automatic (rather than workers bearing most of the costs and all of the risks).

Nearly half of working-age families have nothing saved in retirement accounts, and the median working-age family had only $5,000 saved in 2013. Meanwhile, families in the 90th percentile of retirement savings had $274,000 in retirement, and the top 1 percent of families had $1,080,000 or more (not shown on chart). These huge disparities reflect a growing gap between the haves and the have-nots since the Great Recession, as accounts with smaller balances have stagnated while larger ones have rebounded.

Twelve more charts from the EPI showing the difference between the economy we have now and the economy we would have.

14 thoughts on “The gap between the retirement ‘haves’ and ‘have nots’ has grown since the recession.

  1. There is another report out from Institute for policy studies on CEOs retirement benefits. Using the same method I calculated the value of the pension the same way Ips did for the ceos. Only 22 % of current retirees have a private DB . We know that is headed to near zero over the next decade….their current median is less than 1000 a month. The top fifth median is 18000 a year . The value is about 190000 . That is the top 20 of only 22. Public retirees are a little better but they, that is many of us get only marginally better. I guesstimate because many get a COLA and colas in many states can be touched…but I would say the top 20 public median value might be 300,000 BUT many if not most get no or a social security haircut so the real value for many is much less than that 300k figure. Anyway even that is a joke compared to the CEOs. With all the teir 2s and no DBs I can predict future economic growth….none because there is no disposable imcomes….the only limited justice is it will crash the superrich eventually…..These are important studies and we need to read them .

  2. The people at EPI know it, the unions know it, and we know it. But the vast majority of people don’t know these facts. They hear untrue slogans and campaign rhetoric over and over again. Look at Rauner’s non-stop negative ads. People hear these things so much they end up believing the untrue statements such as “unions are bad”, “pensions are bad”, “teachers and other public employees are overpaid”, “anyone can teach school, they don’t need a degree”, “cutting retired teachers pensions will solve the state’s budget problems”, etc., etc., etc..
    What can we do to get people to understand the facts? DC pension plans were NOT an experiment, the corporations knew exactly what it would do to the employees. It amounted to bigger profits for companies at the expense of their retirees.

  3. 401k’s haven’t failed workers, Social Security has. I’m putting in 6.2% of my wages, a mere 2-3 percentage points less than a state worker puts toward a pension, yet I will get by lucky to get 2-3% return on my “investment”. My Social Security check won’t be 75% of my final salary, but maybe 40% if I’m lucky. I have to redistribute a portion of it if I happen to make more than average (which isn’t that much), something a pensioner doesn’t have to worry about. Plus I have to wait 5+ years longer to receive it. And this is all predicated on current benefits not being diminished, which they will undoubtedly be before I retire.

    If the Feds treated my Social Security payments like a pension, I’d be much better off. Yet everyone screams bloody murder if we privatize SSI.

    • Social Security has always been based on a career-average salary. It is what it is: part of the foundation of a retirement program. The other components are personal savings and employer-assisted retirement plans. Secure retirement is like clean air. Lots of factors contribute to the problems and — as we are seeing — we have the political and economic systems that have evolved and we must accommodate reality even if we don’t like it.

    • Illinois cut pensions drastically for employees hired on or after 1-1-2011, it is called “Tier 2”. It appears to be worse then social security. Tier 2 TRS members pension will have a value worth 7% of their pay, yet they put in 9.4% of their pay, a negative 2.4%. It gets even worse for teachers and other public employees not in social security. If they earn social security benefits for other employment, the public pension triggers a large reduction of the social security benefit that would otherwise be paid.

  4. DC plans have been around a long time (1940s). The type of DC plan you criticize (401(k) plan) was enabled by 1978 legislation during the Carter administration. For background, see According to the article, “these plans…were actually developed more by accident than by design.”
    The main problem with 401(k) plans is that they leave too much discretion to the employee. A mandatory plan that does not permit withdrawals before retirement age would help solve this problem. Forcing workers and employers to contribute and taking away worker’s rights to borrow or withdraw money for “hardships” would advance retirement security. It’s the workers’ preference for more money to spend now (rather than save for retirement) that contributes to the failure of this plan design to provide adequate retirement income.
    There is wisdom in the approach of the federal social security system that makes participation mandatory (for those who work “on the books”) and requires employers to contribute. It’s “sustainable” even though it’s not really “funded” because the fed can print money. The federal government borrows and spends the FICA money, showing less self-discipline than most workers. (Remember the old “lock-box” debate?)
    Since states and municipalities lack to the power to print money, they are forced to get the funds from taxpayers. As the world turns, many taxpayers react with the acrimony you have described. Do you think a better understanding of “the facts” would motivate people to pay more taxes or to vote for higher taxes on the companies that “short-change” their employees? What taxpayers should pay, for example, for Chicago pensions? All of Illinois? Should Illinois residents pay for New Jersey pensions?
    I understand that these are irritating and provocative questions. Unless they are addressed, however, they are likely to be answered by a bankruptcy judge. That will get the politicians off the hook and everyone can blame the judge for their haircut. Problem is, the hair won’t grow back.

    • States are not allowed to go bankrupt under the bankruptcy law.
      Cities like Chicago are not allowed to go bankrupt unless Illinois passes a law authorizing it. (Rauner wants that, but it looks unlikely to happen.) Just having a law authorizing municipal bankruptcy would raise interest rates on all local tax districts throughout Illinois, including school districts.
      Bankruptcy for the City of Chicago would be worse then the existing situation. Bondholders take the first haircut, payments to the pension system are prioritized over payments to bondholders. If the bonds are cut in bankruptcy, the interest rate on future bonds goes way, way up, and the city would still have to pay the pensions.

    • Your last paragraph says it ALL! It is coming folks!!!!! Glenn and Fred I assume think the Illinois constitution is going to save the state’s pensions.. I hope so but money talks bullshit walks!!!

  5. DCs have been around and I have an IRA and we have our pension and I will get some soc security. They were meant to be part of a 4 or 5 leggedcstool with medicare and your house. My wife will get no soc so tge state took that role. Soc is different it has a welfare component that pays more for of tge average for lower income . However the rich pay in way less. I agree with Bernie its benefits must be improved for what is left of mid incomes. And it needs to make up for loss of the DB which was an annuity based on working a long time and earning more. I was stunned by another EPI data point. There are only 70 million full time jobs in the private sector. That is not good . That means manufacturing jobs have gone from not 1 in 4 to one on 10 but 1 in 7 and 2 million jobs to China is much worse than at first glance…also in those EPI studies. EPI does a good job its too bad it is bad news. If the dems had brains they would just look at the data……..just look at the data………

  6. I was just checking my data on how few large 401ks and iras there are ..and I was right but google

    401ks and look at what google fills in for you make it the plural like i put here.

  7. A lot of factors are at play in so far as the general demise of DB pensions, a lot of it has to do with both intentional and some unintentional consequences of union-busting, leveraged conglomerates, wall street fraud and greed, “free trade”, and “deregulation” to name a few.
    In the 1960s and 70s, a union job generally was a job with a DB pension. Part of the reason for good DB pensions was that it helped the employer retain good employees. Employees would endure a lot of crap for decades because of the DB pension plan. This allowed companies to have a stable, highly skilled workforce.
    Non-union companies competing with unionized companies often had DB pensions as well, although usually not as good.
    Reagan started an avalanche of weakening unions when he deliberately forced a strike by air traffic controllers and then fired all of them. The illegal firings were upheld by a labor board stacked with anti-union Reagan appointees. (Somewhat similar to what Rauner is trying to do to state employees.) This showed private companies that union-busting would not only be tolerated by the government, but was actually encouraged. Then “deregulation” of transportation, (railroads, airlines, trucking), utilities, (electric, telephone, cable), caused many unionized companies to set up non-union subsidiaries, transfer the work over to the non-union division, and close down the unionized division. With no union contract, the new companies usually did away with the DB pensions and offered the 401k-type plans that Reagan recommended. Then tariffs were reduced or eliminated, and rampant dumping of steel and other products was ignored. Companies were encouraged to outsource and move manufacturing operations overseas and south of the border. This allowed the companies to underpay and abuse workers, pollute the air and water, and most of all, get away from paying insurance and pension contributions. Because of total de-regulation, unionized trucking companies were undercut by new non-unionized companies that had much lower wages and no pensions at all. This caused most of the companies with Teamster’s pensions to go out of business. Republicans watched with glee as unionized companies went broke and unionized workers were thrown under the bus, their earned pensions lost. The 2 largest employers in the US had been General Motors and AT&T, both unionized companies with DB pensions. The 2 largest employers in the US became Walmart and McDonalds. (AT&T today is a totally different company, they bought the name only when the original AT&T was liquidated and the union employees were thrown into the street).
    As an example, the Teamster’s pension funds are now underfunded. The main reason is that the fund was set up anticipating a stable number of active Teamsters having pension contributions going into the fund. There are now the number of truck drivers that were anticipated, but the number of UNION drivers are way fewer then in previous decades. A full number of estimated retirees, but many fewer active union workers means way less money going into the fund then the amount being paid out. Because the fund is a multi-employer plan administered by a union (like all multi-employer plans), Republicans in congress excluded multi-employer plans from the same basic Pension Benefit Guarantee Corporation protection given to all other private sector pension plans. This is to punish union retirees for having been union. The most a retiree is guaranteed if the multi-employer pension goes under is $16,000 a year, all others are guaranteed up to $60,000. The same situation facing the Teamsters will occur in other union pension plans such as many construction trade unions which also have multi-employer pensions.

    • I think what you say is factual but you don’t mention globalization of manufacturing and the need of U.S. companies to compete with those overseas who paid much lower wages than prevailed in the area that is now the rust belt. An intermediate step was the flight of companies from those states to less union-friendly states. (Boeing to S. Carolina, for example). Further, I don’t think the manufacturing and trucking companies that you cite as examples are persuasive in the public employee context. Business enterprises (especially where they are owned by institutional investors) are driven by profit motive and business executives are motivated by short-term performance incentives. Those who manage public entities have had little incentive to control compensation and benefits.

      Culpable in both public and private sectors were venal consultants (actuaries, CPAs, lawyers) who promoted DB arrangements while lining their own pockets.

      It is, as you observe, a multi-faceted problem. In the private sector, market forces have punished companies like Generous Motors. (GM became a company that provided health benefits and incidentally made automobiles.) How does the public sector persuade its “stockholders” or “investors” to pony up? How does a taxpayer “buy a Toyota?” GM could not coerce people to buy ever-more-expensive and unreliable Chevrolets in the 60’s and 70’s. How do government entities running deeply in the red fix the underfunded pension problem?

      • I couldn’t mention everything without writing a short book, you have mentioned some additional factors. I mentioned the Teamsters to highlight 2 factors. One was the deliberate de-unionization of the trucking industry by de-regulation of a regulated, mostly unionized industry. The resulting drastic reduction of the numbers of Teamsters union drivers was what the Republicans wanted, the resulting lack of pension contributions was a by-product. The Pension Benefit Guarantee Corporation law was then set up with a provision to discriminate against union administered multi employer pension systems to punish and impoverish union retirees.
        Both the Teamsters and TRS DB pension systems are underfunded because of lower then required amounts of revenue going into the funds. Teamsters because of deliberate actions by the government to weaken the union and unionized trucking companies. The TRS (and other Illinois and Chicago pension systems) were underfunded by pension contribution theft by politicians, who “borrowed” the contributions with no intent to pay it back. The solution to both the teamsters and the Illinois systems is additional revenue needs to go into the systems. Government entities have to increase revenue and reduce other spending if need be to pay their pension obligations. Illinois could still get bonds at a much lower interest rate to pay down the pension system obligations that are at a substantially higher rate. Also, the payment schedule to 100% funding could be lengthened, and the income tax could be increased. As for the multi-employer pensions, the Pension Benefit Guarantee Corporation law should be amended to guarantee all pensions to the same amounts.

  8. I agree that insufficient contributions are the primary cause of under-funding. I don’t have any knowledge of what Republicans or Democrats “wanted” at various points in time. On Google I learn that the “deregulation of the trucking industry began with the Motor Carrier Act of 1980, which was signed into law by President Carter on July 1, 1980.” I also know that ERISA, with its different treatment (perhaps discriminatory) of multiemployer plans was enacted in 1974. So the chronology of your analysis seems off … although there is much that I don’t know.

    An aspect of collective bargaining in these industry-wide unions is to negotiate both current compensation and plan contributions. If one assumes a finite amount of dollars available for current and deferred compensation, and the inclination of workers to want larger paychecks, then I think it’s necessary to conclude that the unions at least participated in the collectively bargained decisions to make lower contributions to the plans. The employer parts with cash and gets a tax deduction without regard to where the money goes.

    Deregulation meant that truck drivers earned less and many trucking companies folded. Environmental protection efforts resulted in the shut-down of coal mines. Robots are putting lawyers out of business. How should society deal with displaced expectations?

    I understand that 20-20 hindsight might now cause Teamsters and others to wish that they had bargained harder for sufficient plan funding. Presumably the union or the plan itself had actuaries who were evaluating the situation on a continuous basis. The current situation presumably did not arise out of intentional wrong-doing (although there might have been some kickbacks involved in the plans’ investments). My main issue is who should now PAY for the diminished pension expectations? Writing an amendment to the PBGC law does not solve the problem. Again according to Google the PBGC’s single-employer program deficit (2015) increased to $24.1 billion, up 25% from fiscal year 2014, while the multiemployer insurance program deficit (2015) was $52.3 billion, up 23% from the previous fiscal year. This is a policy question that must now be addressed with the recognition that whoever is to blame for yesterday’s misdeeds has no capacity to fix the problem. When it comes to finding money it’s a problem to decide what taxpayers should pay and how much is it reasonable to ask them to pay.

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