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APRIL 2002
Retirement Disasters
Loom for Many Baby Boomers
by Rick S. Bender, President of
the Washington State Labor Council, AFL-CIO
Last
month my brother-in-law lost his job after 25 years with the same office
products company. At 53,
that’s tough on anyone. But
what is really outrageous is that after 25 years of loyal service, my
brother-in-law also lost every dime of his profit sharing pension program
because the company he worked for has gone out of business.
Is the term “Retirement Security” an
oxymoron; in other words, is it a contradiction in terms to have security
in your retirement? I
don’t think it should be unreasonable to expect that after working hard
all your life you should be able to count on a secure retirement!
But with the continuing efforts to privatize Social Security, and
with the current raiding of the Social Security “lock box”, it’s
important to look at what other resources retirees can count on.
It’s also timely to consider retirement
in light of the disaster for more than 6,000 Enron employees who lost
their 401(k) pensions, in many cases losing their entire life savings,
when the energy trading company went bankrupt.
Less well known, but potentially as disastrous, is the American
Legislative Exchange Council’s campaign to encourage state governments
to forsake defined benefit public employee pensions plans in favor of
defined contribution plans.
Pensions come in basically two types:
1. Defined benefit: Where the employee is guaranteed a defined monthly benefit upon retirement.
2. Defined contribution: Where the employee contributes a defined amount, often matched with an employer contribution, with no guarantee, and the potential for big gains or losses.
Defined contributions, often set up as 401(k)
plans, became popular during the Wall Street boom of the 1990’s when it
appeared that stock market gains would create great retirement wealth for
those highly invested in stock plans.
But with Enron’s debacle, with stock prices falling from $90 a
share to virtually pennies, employees watched their retirement wealth turn
to worthless paper. Now that
the stock market appears to have stalled into a more normal cycle, those
counting on huge stock gains for retirement security may be beginning to
realize that they are vulnerable to large risk.
Just last month, the Senate’s Health,
Education, Labor and Pensions Committee approved legislation that gives
employees the right to sell company stock in a 401(k) plan and gives
workers a larger voice in running their defined contribution plans.
The bill, sponsored by Senator Edward Kennedy (D-Mass), recognizes
that 401(k) plans are part of many workers’ retirement and should be
improved to offer critical protections.
Unfortunately, the Bush proposals makes it appear that the
Administration is more protective of Enron-type businesses than the
employees who are depending on 401(k)s for a secure
retirement.
Public employees in our state have defined
contribution pension options through the state’s retirement systems.
They are known as PERS, TERS and SERS 3 plans.
They too became popular when the stock market was booming.
(Thousands of teachers joined the then-new plan called TERS III,
but many may now wish they’d remained in the more predictable TERS II
defined benefit plan.) Members
of the PERS II plan are currently considering whether to switch to PERS
III, in other words changing from a defined, predictable monthly pension
at retirement to a less predictable retirement that may provide higher or
lower benefits depending on market fluctuations.
But at least public employees can be assured that their employers
won’t go bankrupt, wiping out their pension altogether.
As the huge baby boom population now begins
to approach retirement age, their pensions, or their lack of pensions,
will shape many other policies. Many
problems will loom large as huge number of middle age workers realize they
don’t have enough savings or investments to provide for a secure
retirement. Like Peter Pan,
many aging boomers are living in “Never Never Land” by failing to
demand better protections for their financial future from their employers
and their government.
One group that won’t likely have as many
problems with retirement security will be union members, because the vast
majority have defined benefit pensions as part of their union contract’s
benefit package. In contrast,
less than half of the non-union workforce even has a pension, and most of
those are the unpredictable defined contribution type.
Only 16 percent of non-union pensions have guaranteed defined
benefits. It’s predictable
that they’ll have problems ahead.
Advisors say pensions should be one leg of
the three-legged stool of retirement security, with personal savings and
Social Security making up the other two legs.
As I wrote in last month’s column, with so many workers unable to
save enough to provide for their future and not having a secure pension,
the need to defend Social Security becomes even more crucial.
Anyone with concerns about their own
pension or 401(k) plan will find a motherlode of information from the
federal Department of Labor’s pension and welfare benefits
administration, www.dol.gov/dol/pwba/.
Information is vitally important in order to make the best choices.
Good choices will be necessary to protect our financial future.
Rick Bender is President of the
Washington State Labor Council, the largest labor organization in the
state.
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Copyright © 2002 Washington State Labor Council, AFL-CIO