As the Louisiana Legislature last week charged headlong into a 401(k)-like pension plan for new state government employees, columnists across America questioned whether the staple of private sector retirement since the 1980s is a failure.
The plethora of doom-and-gloom stories last week — even from the corporate cheerleaders at The Wall Street Journal and Fox News — came on the heels of an Employee Benefit Research Institute survey that found the value of savings for 60 percent of the nation’s workers is $25,000 or less.
Only 22 percent of the workers over the age of 55 have more than $250,000 saved up for retirements that could last decades, the analysis showed. The EBRI says the average earner will need about $900,000 upon retirement.
The Week magazine published an article titled “The Not-so-Golden Years” that said the average balance, in all 50 million 401(k) accounts is just over $60,000. Two-thirds of the nation’s workforce will rely on the plans that were developed to help private companies avoid the retirement costs for their employees, according the article.
State Rep. J. Kevin Pearson, R-Slidell, said the legislation he sponsored, which would change the retirement for newly hired state employees is not a pure 401(k) plan. Nevertheless, Pearson said the EBRI survey’s findings mirror what he sees as a financial planner.
The reality is that because of underfunded retirement savings, a large number of elderly people are going to have to dramatically decrease their lifestyle or continue working during a period of their lives when they are less healthy and jobs are less plentiful, Pearson said. “It’s almost a crime that so many people weren’t educated to spend time on that (retirement planning) and to really understand what is necessary,” said Pearson, who chairs the Retirement Committee in the Louisiana House.
Half of those surveyed by EBRI left the workforce unexpectedly — not because they had reached the age where they had planned to retire, but because of health problems, disability or changes at their employer, such as downsizing or closure.
The EBRI analysis, called the 2012 Retirement Confidence Survey, relied on 20-minute telephone interviews with 1,262 workers and retirees across the country. The statistical precision was plus or minus 3 percentage points.
Fox News reported last week from another study, this one from the Carsey Institute at the University of New Hampshire, which found that during the last decade, the number of full-time workers over the age of 65 had risen to 22 percent of men that age and 13 percent of women. The Washington Monthly reported a rapid increase in the poverty rate among the elderly.
Joe Nocera, the business page columnist for The New York Times, wrote that his own 401(k), begun in the late 1970s, was depleted by loans against it, divorce and downturns in the market. A behavioral economist at The New School, Teresa Ghilarducci, told Nocera that his case was the rule, rather than the exception.
“The 401(k),” Nocera quoted Ghilarducci as saying, “is a failed experiment.”
State Rep. Joel Robideaux, R-Lafayette, who chairs the House Ways and Means Committee, but is considered the Legislature’s retirement guru, said the hybrid plan in Pearson’s House Bill 61 addresses issues of the retirement system on which most of the nation’s private-sector workers rely.
Robideaux said he always has been uncomfortable that a 401(k) plan “puts the decision on folks ill-equipped to understand what is good and why.”
The key difference between a traditional 401(k) and the “cash balance” plan passed by Louisiana legislators last week is that state employees would not lose money when investment markets drop, as happened in 2007, he said.
Under the current plan, called “defined benefits,” Louisiana taxpayers guarantee that state employee retirement benefits maintain a specific level of return, which has been around 8 percent, regardless of what the markets do, Robideaux said. Now, if the market performs at, say, 2 percent growth, the state will not kick in the difference, he said.
“They may not see their account grow the way it has in the past when the markets are down. But with a floor of 0 (percent), they won’t lose their money,” Robideaux said. “All we did is fix the situation for some state employees.”
Mark Ballard is editor of the Capitol news bureau. His email address is firstname.lastname@example.org.