The much-hyped 401(k) has been a failure for working families.
Washington today is divided. One could say that many of our states are divided as well. With so many marquee issues on the line over the next few years — tax reform, healthcare, Social Security, Medicare — there is one topic both parties can agree on: Americans are not fully prepared for retirement.
In a recent report, the National Institute on Retirement Security (NIRS), found some startling data: 76 percent of Americans are concerned about their own ability to achieve retirement security. That goes for Republicans and Democrats alike, 78 percent of Democrats and 76 percent of Republicans, to be precise. What’s more, 88 percent of Americans agree that the nation faces a retirement crisis.
So how did we get here? After World War II manufacturing giants like GM, Armstrong, RCA and GE had a full union workforce. Unions fought for higher pay and a dignified retirement after a lifetime of work. That’s where the pension came in – a defined benefit that workers knew they would get every month that they could rely on to support themselves and their families. Pensions flourished in both the public and the private sector.
Then, beginning in the 80’s, driven by greed, companies stopped offering pensions to new employees and, in some cases, even raided the funds – money workers thought would be there for their retirement. Amidst all of this, arose the so-called golden goose: the much-hyped 401(k).
The 401(k) was supposed to be the savior of workers’ retirements. Employers would match what their employees put into the fund, the employee could manage the investments, choose the risk, and fund managers (the experts) would make out like bandits. Well, things didn’t turn out like some expected. Many workers did not contribute what they should have for retirement, and many employers offered a very low match, if they offered one at all. Then, after the market crash in 2008, many people lost much of their savings. Even the creators of the 401(k) said it was never intended to be the primary savings plan for retirement, instead it was to help c-suite executives cut down on their tax bill.
With the rise of the 401(k), we’ve seen Americans much less prepared for retirement. The median savings in 401(k) accounts nationwide is only $18,000, a tiny fraction of what’s needed to retire with dignity. When Americans are not financially prepared to retire, but can’t physically work any longer, they may have to fall back on their children, asking for help with medical expenses. Parents may be forced to move in with their children, which will require money that many families would have spent elsewhere – their kid’s college funds, buying a home, or saving for their own retirement.
Think of your grandfather who worked on the railroad or worked on a loading dock and had that great union job – he retired, collected a pension, and lived out his golden years with dignity. In today’s world, that story is much less common. So uncommon, that most Americans believe that the disappearance of pensions is killing the American dream. This is not something our policymakers should take lightly. In order for us to solve a crisis, we first need to admit that we have one. Then, we should work together and expand access to pensions so we all truly have the ability to live the American dream and retire with dignity.
Bailey Childers is the executive director of the National Public Pension Coalition.
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