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Most Workers Will Outlive Their Savings

How the Corporados Wrecked Retirement

by RICHARD TRUMKA

Today’s retirement security crisis is just one of the many painful consequences of the failed economic policies of the past 30 years-policies of radical deregulation and corporate empowerment.

These policies allowed — and even encouraged — employers to walk away from what had been a system of shared responsibility. The result? Today, fewer than 20 percent of private-sector workers have real, defined-benefit pensions.

Today only 13 percent of workers say they are very confident about having enough money for a comfortable retirement-that’s the lowest level in 16 years. And this lack of confidence is justified. The majority of America’s workers will face retirement with far less security than their parents.

Before the rise of the labor movement in the 1930s and 40s, elderly Americans were the most impoverished age group in our society, and only a privileged few received government or employer pensions.

With the enactment of Social Security and the growth of union-negotiated pensions, elderly Americans became the least impoverished age group.

After the New Deal, it was collective bargaining that set the pattern for labor markets-and not just for workers covered by union contracts.

These were the years that produced the three-tiered American retirement system: Government provided a foundation with Social Security, employers provided defined-benefit pensions and individuals saved for their retirement. . .

Today, all three tiers of that retirement system we built are in danger. Employers are increasingly abandoning their pension plans. Workers with lost jobs and stagnant incomes are unable to save.

In this bleak landscape, Social Security stands out as the one feature of what passes for our retirement system that works for all Americans. But too many in Washington seem bent on perpetuating the Bush administration’s attacks on Social Security.

When people lump together Social Security attacks with deficit reduction efforts, we have to remind the public of this basic fact: Social Security is not contributing to our budget deficit-in fact, the buildup of the Social Security Trust Fund is financing our budget deficit.

And while the program faces a funding shortfall over the next 75 years, in pension plan terms, Social Security is 88 percent funded over that 75 year period of time and by any measure would be considered a healthy pension plan. Relatively modest adjustments-without benefit cuts-can address even this long-term issue.

Social Security is the most important family income protection program and the most effective anti-poverty program ever enacted in the United States. One-third of Social Security beneficiaries receive more than 90 percent of their income from Social Security. Two out of three depend on it for more than half of their income.

Social Security is the sole source of income for nearly one in five seniors. The average Social Security benefit is just little more than a minimum wage income-meaning a typical retiree needs almost twice the average monthly Social Security benefit for a reasonable standard of living.

And if that’s not bad enough, growing Medicare cost-sharing means our seniors will need higher benefits just to maintain the replacement rate of the past 25 years. . .

If you are lucky enough to have a union, there is still a good chance that you have a pension plan. Sixty-six percent of union workers have pensions, compared with only 15 percent of nonunion workers. But unions are under increasing pressure at the bargaining table to allow employers to cut or eliminate real pensions.

In the private sector, the funding rules for single employer pension plans in the Pension Protection Act of 2006, coupled with new accounting standards, have contributed to an environment in which even healthy companies are freezing their pension plans entirely or closing them to new hires.

Our current economic downturn has made this much worse. In many parts of this country, public-sector workers have the right to form unions. Not surprisingly, state and local government workers are four times more likely than private-sector workers to have defined-benefit plan coverage. But public-sector plans are under attack through legislation and ballot initiatives.

In the private sector, over the past decade, many employers have abandoned their real pensions for 401(k) plans-plans with little or no employer money . . . plans with no protection for workers against market risk or outliving your money. . . and plans with high investment management fees.

We hear different reasons for this, but here’s the bottom-line problem: Our current system lets employers off the hook. They can refuse to provide any benefits at all. If there ever was an implicit social contract, it has eroded.

Look at the data: The median account balance in 401(k) type plans for 62-year-old workers is worth an annuity payout of about $400 a month. $400 a month. That just doesn’t cut it. And most workers will outlive their savings.

RICHARD TRUMKA is president of the AFL-CIO.