Dude, Where's My Retirement?
Dr. Christian Weller is a senior economist at the Center for American Progress, where he specializes in Social Security and retirement income, macroeconomics, the Federal Reserve, and international finance. Prior to joining American Progress, he was on the research staff at the Economic Policy Institute, where he remains a research associate.
Will you have enough money for retirement? Once taken for granted, the certainty that benefits promised to you will actually exist when you retire is now in question. The good news is that Social Security can pay full benefits for almost four decades. This is a guarantee that private benefits don't offer. The recession decimated 401(k)s and traditional pensions, and"what’s worse"as health care costs soar, many employers are making retiree health insurance more expensive for future retirees. To top it all off, the Bush administration has, whenever given the choice, moved toward eliminating the government's promise of retirement benefits"most recently by threatening to veto a bill that would offer much-needed relief for traditional pension plans. This is the bad news. If the administration continues down this path, many more retirees will not have enough money for retirement.
Securing retirement benefits is no small feat. The rapidly rising cost of health care"especially prescription drugs"poses the most urgent threat to these benefits, at a time when employers are cutting back on retiree health insurance. The Kaiser Family Foundation reported earlier this year that 38 percent of employers with more than 200 employees offered retiree health insurance in 2003"down from 66 percent in 1988. And many employers who still offer it plan to shift costs onto retirees. Yet, the Bush administration backs a Medicare prescription drug plan that fails to control rampant health care costs and leaves many retirees out in the cold. Already the projected costs for the Medicare plan are 30 percent higher than the original and misleading White House claim.
Many workers do not even have a pension to begin with. More than half of all private-sector workers have no pension where they work, a fact that has remained unchanged for the past 30 years, despite targeted government efforts to increase pension coverage.
What's the Bush administration’s response to all this? A warmed-over tax cut for the wealthy through Retirement Savings Accounts (RSAs). With RSAs, people could put away up to $5,000 a year after taxes and earn interest and withdraw money tax free. While this sounds appealing, it primarily helps the wealthy because they are already maxing out on other tax-advantaged savings, and are likely to actually face substantial income taxes in retirement. Because RSAs will allow high-income earners to reap tax advantages outside of a company pension, business owners and executives will have less of an incentive to establish pensions for themselves and their employees. Thus, RSAs could actually result in less pension coverage.
Remember Enron? While most 401(k) plans continue to feel the effects of the corporate scandal, the government has done little to protect the 401(k)s Americans depend on from the damage of corporate corruption. The U.S. House of Representatives has twice passed the deceptively named Pension Security Act""strongly" supported by the White House"which offers a Faustian bargain that would ultimately make pensions less secure and reduce pension coverage. The bill permits workers to unload their employer’s stock more quickly, but it also repeals existing worker protections by allowing mutual funds and other investment managers"the very same companies now accused for misleading and exploiting ordinary investors"to give workers conflicted advice on their 401(k) accounts. At the same time, the bill makes it possible for companies, which can already exclude 30 to 80 percent of regular workers from their pension plans, to exclude even more workers from their 401(k) plans and pension plans.
Why stop with 401(k) plans, the Bush administration must have asked itself, when you can also worsen the lot for more than 40 million beneficiaries of traditional pensions? When temporary relief for these defined benefit plans was about to expire in 2003, the administration pushed for a technical rule change that was opposed by labor and businesses alike. The change would have made pension plan funding more cumbersome and less predictable. CIEBA, an association representing 110 of the country’s largest pension plans, estimates that 45 percent of plans would reduce benefits if this rule change were enacted.
The Bush administration is waging a two-front assault on retirement benefits. On the private side, the administration has either exacerbated or ignored the growing retirement security risks. On the public side, the administration has decided to target the only safe bet Americans can rely on in retirement"Social Security and Medicare"for privatization. If the administration gets its way, retirement security, a source of support Americans should expect in their later years, will no longer be a sure thing.
Click here to subscribe to our free e-mail dispatch and get the latest on what's new at TomPaine.com before everyone else! You can unsubscribe at any time and we will never distribute your information to any other entity.
Published: Apr 15 2004
