Unhappy 40th Birthday, ERISA: So Much for Retirement Security

The enactment of the Employee Retirement Income Security Act on September 2, 1974 was inspired by the 1963 collapse of the Studebaker Corporation, whose pension was so poorly funded that even workers with 10 years of service got a tiny pension and about a third of the workers got nothing. The bill was sponsored by the late Senator Jake Javits, a gutsy liberal Republican from New York who also supported banning segregation in housing projects, along with supporting the Civil Rights Act and the rights of labor unions.

As Javits' son, arbitration attorney Josh Javits, told me: "As my father said upon the passage of ERISA in 1974: 'The Congress has made an auspicious beginning with the enactment of the pension reform bill, but there still remains a great deal to do if we are to promote a more satisfactory private retirement system - one that will enable every American, after his or her productive years, to look forward to a retirement with freedom from anxiety and from economic want.'"

Unfortunately, as attorney and political activist Ed Garvey observes, many companies, from Northwest Airlines to General Motors decided to "deliberately underfund the pension programs and spent the money...Where is the leadership on this travesty?"

Not only did companies decide to break their pension promises, but get rid of the plans altogether. From 1974 to 2004 the percentage of Americans covered by a pension shrank from 44 percent to 17 percent, according to the Employee Benefit Research Institute.

Companies instead set up 401(k) plans, which were never intended to be a retirement plan but a supplement to an existing pension -- the typical employer contribution rate is equal to 3 percent of pay versus 8 percent of payroll for a regular pension. As a result, we are looking at a retirement catastrophe. According to the Federal Reserve Board, the median amount saved for those age 55 to 64 was $100,000 in 2010 -- or a measly annual income of $4,000, or about $77 a week. The U.S. has one of the least generous pension systems in the advanced world; only six member countries of the OECD have lower pension wealth.

As I observed in a previous post, what makes these empty nest eggs even scarier is that more Americans have bigger bills than their parents did. More than 50 percent of Boomers between the ages of 55 and 65 were making mortgage payments in 2007 -- on average owing more than $140,000, according to the Survey of Consumer Finances. That amount is nearly three times what was owed by that age group a mere 18 years earlier, when only 34 percent were making mortgage payments.

Let's make sure Senator Javits' efforts weren't in vain. We need to put pressure on Congress to move on this measure -- especially since long-serving members are among the few Americans that can afford to retire. A member with 20 years of service under Federal Employees' Retirement System and a high three-year average salary of $174,000 collects an initial annual pension of more than $59,000 -- on top of Social Security.

A $4000 Annual Paycheck Is No Pension

If you agree that we need to tackle our pension crisis, please contact your Congressperson to ask Sen. Tom Harkin to hold hearings on this topic. If we can't reform our system, we at least need to communicate to Boomers that most of them need to stay at their decently-paying jobs for at least another decade, rather than "retiring" and ending up taking part-time, benefit-less minimum-wage jobs to try to make ends meet.