Will Hillary Clinton Address Our Retirement Crisis?

When will the Presidential candidates address the biggest economic crisis nobody's talking about? The vast majority of Americans can't retire--and that includes those who are covered by a 401(k) plan, public pension OR employer-based pension. That's the reason why nearly 20% of Americans over 65 are still working -- the highest percentage since the 1960s. And that percentage will get closer to 70 or 80% once the already-retired realize that they will soon run out of money unless they go back to work.

Social Security is only meant to replace about 40% of the average person's pre-retirement income. This year, the average monthly Social Security check is $1,345, which works out to a little more than $16,000 per year.

President Obama's recent call to expand Social Security highlights a populist shift propelled by Senator Bernie Sanders. While just five years ago, Obama called for reducing future Social Security benefits his change of heart may have been driven by a 2014 Federal Reserve Survey finding that 42 percent of American workers earning under $40,000 a year, and a quarter earning between $40,000 and $100,000, have zero retirement savings. In March 2015 Senator Sanders pushed for a vote on an amendment by Senator Elizabeth Warren proposing expanded Social Security benefits.

But even if Social Security is expanded it won't make up for the shortfall that most Americans are facing. Not only are fewer Americans "covered" by a pension, but most of them change jobs so frequently they are unlikely to be "vested" or "own" benefits even if they work for a company with a pension. Why? For a traditional defined benefit plan, you've got to stay on the job for 5 years until you are entitled to the benefits; in another version you "gradually" own them--20% after 3 years, going up 20% per year until you're100% vested at 7 years.

These vesting rules would deprive the majority of Baby Boomers
of pension income according to 2015 research by the Bureau of Labor Statistics. The average person born between 1957 and1964 held 11.7 jobs from age 18 to age 48, leaving his or her job about every two years. While you would expect job tenure would increase once people reach middle age it didn't increase by much--among jobs started by 40 to 48 year olds, a whopping 69 percent of these jobs ended in fewer than 5 years.

What's even more tragic is that even those workers who spend an entire career at a company offering a pension are likely to end up on the short end of the stick as Wall Street Journal reporter Ellen Schultz observed in her book, "Retirement Heist."

Despite the fact that two decades ago, these plans were generally well funded, thanks in large part to rules enacted in the 1970s that required employers to fund the plans adequately and laws adopted in the 1980s that made it tougher for companies to raid them, they figured out to make the plans disappear.

While by the end of the 1990s pension plans at many large companies had such massive surpluses that they could have fully paid their current and future retirees' pensions--even if they lived to age 99--many of the companies siphoned billions of dollars in assets from their pension plans. Many, like Verizon, used the assets to finance downsizings. Others, like GE, sold pension surpluses in restructuring deals, indirectly converting pension assets into cash.

As a retired pension actuary who would prefer to remain anonymous told me "Employers have fairly consistently shown that they are driven by profit motives and not by what is best for their employees."

Then we've got the leadership of the public sector pensions, many of whom put the money in risky investments to address longer life spans, rather than require increased contributions. They also assumed that while companies may go bankrupt states and cities would be there forever. Now, a long-living baby boom generation and municipal bankruptcies are blowing holes in that notion. According to the National Association of State Retirement Administrators, virtually all public pension funds are in what is called a ''cash-flow negative'' state, meaning that they pay more in benefits than they collect in contributions.

Enacting legislation to reform the public pension system would be difficult, if not impossible, but what about 401(k) plans in the private sector? Clinton's only proposal for reform that I've seen was co-authored by Teresa Ghilarducci, a professor at the New School for Social Research and Hamilton James, the President of Blackstone, an asset management group. The first major flaw in their proposal is that it would actually REDUCE the typical employee contribution of 5 percent of pay and employer contribution equal to 3 percent of pay--adding up to 8% of pay-- to a mere 3 percent split between the employer and employee.

In addition, the authors have proposed requiring employers to offer a 401(k)-style "Guaranteed Retirement Account" that "could be invested in opportunities typically reserved for institutional investors...including real estate, hedge funds, managed futures and commodities." Why they consider real estate "risk reducing," since you can't reap any returns unless the property is sold at a profit, is beyond me. As for "managed futures," during the decade ending in 2012, more than 30,000 investors entrusted Morgan Stanley with $797 million in a managed-futures fund that made $490.3 million but investors reaped none of it because the profits were consumed by $498.7 million in commissions, expenses and fees.

Bottom line: we have a huge economic crisis that nobody is addressing: the vast majority of Boomers cant afford to retire, which will not only force them to keep working during what are supposed to be their "golden years" but will wreak havoc on the job prospects for their Millennial kids.