BUT IT'S CHEAPER, RIGHT?

Children born since the year ~1995 will need to have the concept of a pension explained to them. It will be about as relevant to their lives as the carburetor, the telephone switchboard operator, and the Victrola. And we will have to explain that after St. Ronnie descended from heaven and a lot of people in expensive suits spent ten years doing blow, corporate America came up with this great idea: rather than having a defined benefit, why not have defined contribution retirement plans? It would cost employers far less, sure, but it would benefit the working stiff, too! Why be saddled to a defined benefit when you can invest your money in Mutual Funds (remember when those were all the rage? Gosh, I Love the 90s!tm) and watch it grow, like, 10-15% per year! Hell, maybe 20%.

The internet came along at just the right time to make this seem plausible. Look! Websites! E-Trade! You can be your own stockbroker! Sure, nobody really understands any of this shit, but…Mutual Funds! A trained monkey could pick those, and our Investment Professionals take care of the rest. You just get a drink with an umbrella in it, sit back, and watch your money grow.

Now that this new era of capitalism is mature – if any aspect of such a scheme can be so labeled – it turns out that the estimates of future gains may have been slightly exaggerated. Maybe we all were a tad optimistic. So maybe it has been more like 5% annualized, if you're lucky. And then there's the Investment Professionals. Boy, we should maybe have screened them a little more carefully, or supervised them a little, or maybe not incentivised gambling with your money for short-term gains. And then there was that whole real estate thing, which no one could have foreseen. Everyone knows that real estate is a good investment! OK, OK. Lessons learned.

Here in academia, we're one of many professions currently bemoaning the sluggish job market and pointing to Aging Boomers Who Won't Retire as part of the problem. Having almost completely abandoned the defined benefit in favor of defined contribution plans 20 years ago, apparently it never dawned on our social betters that people won't necessarily retire when we (collectively) might like them to if we give them a retirement plan with a value that changes, quite literally, by the second. Oddly enough, they seem to be hanging on "just another year or two" hoping that The Market will increase the value of their savings – savings that are, even among responsible savers, often pretty meager.

"I guess they should have saved more!" we say with wagging chins and scornful glances. Well, thanks to another invention of the 1980s – constant downward pressure on wages, temp-ification of the profession, and so on – even people who saved rather aggressively might have amassed comparatively little over their working lives, given the cost of living as they cross age 65. It turns out that if a worker's retirement savings is a percentage of their earnings and you pay them jack shit, they reach their late 60s and can't necessarily afford to retire. Contrary to the propaganda, most people in higher education are not making a ton of money. And then people in the profession wonder, gee, why won't all these old people just retire? Well, saving 20% per year on a salary that topped out at $68,000 after forty years isn't going to be very reassuring to a 65 year old. What if I live another 20 years, they think. Better work just a few more…

Everyone in this country tells you that things like communism only work In Theory, and they are right. What they neglect to mention is that most of the things about the system we have in place – and actively endorse at all levels of society – only work In Theory too. Sure, 401(k)s sounded great, if the market gave 10% annualized returns and if one's income increased steadily over the life course. That's two Ifs too many, and the end result has been a predictable trainwreck: too many elderly people end up having to retire on Social Security and little else, or they simply work until they drop waiting for their 401(k) of magic beans to grow another 10 or 20 percent.

With no disrespect to the older readers, watching a 77 year old perform most jobs is not an inspiring sight. Someone pushing 80 has no business being in a classroom, for example. Yet here they are, still teaching, still doing any other profession in which a mandatory retirement age can't be (or isn't) enforced. For years (not coincidentally, the years I was desperately searching for a job) I wondered what was wrong with these people. Why won't they retire? Are they selfish? Senile? Delusional? Over time I learned, though, what three decades of stagnant salaries, increasingly expensive health benefits, and the "slight" under-performance of the ol' Employee Retirement Plan can do to one's definition of the right time to retire. Meanwhile, the real under- and unemployment rate for people in their twenties is, what, 50%?

But hey, it saved our employers money. So it's a win, according to the gospel of American economic wisdom (St. Friedman version).

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47 Responses to “BUT IT'S CHEAPER, RIGHT?”

  1. Daniel Says:

    I've done some substitute teaching, and I always wondered what these retired teachers were thinking when they would come back to sub. Aren't they retired? They want to do MORE teaching? Are they this bored? ISN'T THERE ANYTHING ON TV? I didn't think that they might need to sub to be able to live and whatnot. Retiring ain't what it used to be.

  2. xynzee Says:

    I've always believed that these 401(k) – and the Australian equivalent "Super" – should have carried a legal requirement that they had to have a guaranteed savings component to them. Like a bank account. At the *very* least you get your principle (plus interest earned) back.

    That would have prevented this gambling with OPM like we saw. This way the investment companies would be on the hook.

    Instead we got this BS system that has benefitted only the grifters. Imagine if Shrubling had gotten his way and privatised SS?

  3. wetcasements Says:

    "Aging Boomers Who Won't Retire"

    Silly Ed! Those tenure-track jobs will be filled by adjuncts and grad. students!

  4. LK Says:

    In many other professions there is some of the inverse problem- if you're over a certain age, no one will hire you. This means you have to take a job that does not fit your skills, where you get paid less than you used to; it also means you probably spent a year or five finding said job, eating into your savings; and finally it means you won't be saving as much for your retirement (and probably have lost a bucketload of benefits in the transition).

    And this works well for everyone's benefit. At least when weighted by net worth (including corporations- they are also people, aren't they?).

  5. Ten Bears Says:

    It is my (recent) experience the un and under employment rate for people over fifty is 50%. Could be wrong, but I doubt it.

    The only contribution my 7 years as an adjunct made were to Social Security.

    No fear.

  6. jon Says:

    I have a pension. Or will, anyway. Aside from coworkers, I know of no one else who does. No one.

    I had the choice at my new job (went from state to county employment) to have a 401k or other private plan in addition to my state pension and Social Security. Decided not to, as I'd much rather have my money not enrich day traders in search of a bonus. That's what my bank accounts do, after all.

  7. Number Three Says:

    But jon, those government pensions are not as safe as they used to be either. My dad is a retired state employee (34 years) in Michigan. 2010 rolls around, and the leans old electorate in mid-terms elects a GOP governor. Now my dad's state pension is taxed by the state, thus reducing its value.

  8. c u n d gulag Says:

    Conservative POV:
    Now, without having to pay defined pensions, our "Job Creators (All kneel… Let us pray for them, as they prey on us… All rise….)" are more free to create jobs!!!

    Now, if only you worthless Libtards would eliminate minimum wages, you'd all be sleepless from having all of the jobs you'd ever want.

    Literally – sleepless!
    JOBS!!!

    You could have so many damn jobs, to pay for rent, for food, and gas, and your kid's privatized schools, and trying to save for their expensive college educations, and everything else people had from after WWII, and took for granted, until Nixon, Saint Ronnie, and the Bush's came along.

    People took things like having good-paying jobs with benefits, so they could afford house payments, rent, food, gas, car payments, public education, for granted too much.

    And we wanted to make sure that everyone appreciated what those older folks had.
    And so, we took them away, so you could appreciate them better.

    And, now that you don't have them, don't you appreciate what your parents and grandparents had, more?

    Sure, you do!

    Oh, look – it's almost 7am!
    Time to go to your first job of the day.
    If, IF, you even have one.

    And if you don't , or don't make enough in your current job, or jobs- call your Congressional representatives to eliminate the minimum wage.
    Then you can ALL get jobs.
    As many as you want – or need.
    But, on OUR terms.
    On OUR terms, baby!!!

    BWA-HA-HAAAAAAAAAA!

  9. jon Says:

    I'll take a pension at reduced value over a 401k, not that I don't see your point.

  10. Comradde Physioprof Says:

  11. Major Kong Says:

    In the airlines, after Delta and United lost their pensions a few years back there was an aggressive lobbying campaign to raise the mandatory pilot retirement age from 60 to 65.

    This went into effect around 2008 and created a 5-year backlog of pilots who would otherwise have retired.

    Career advancement as an airline pilot is purely based on seniority. For me to upgrade to a higher paying seat someone ahead of me has to retire.

    Looks over at Captain: "Hurry up and die you old bastard and get out of my seat!"

  12. JohnR Says:

    'Looks over at Captain: "Hurry up and die you old bastard and get out of my seat!"'

    Aren't you allowed to carry a gun in the cockpit now, Major? Well, accidents will happen, you know…

  13. Middle Seaman Says:

    The American, and therefore the rest of the developed world, version of capitalism: support the rich and screw everyone else. Pensions are just one instance of this approach.

    As non-rich, you are on your own be it 401K, savings or social security. No sane person ever thought that the 401K will balloon. That happens only to the rich. The 401K was always a way for employers to screw us elegantly.

    Retirement age was eliminated. In academia it means that many old people such as me overstay their welcome. We have profs who hardly walk but stay around. Usually not because of small 401K, but because they don't have a life.

    By and large, St. Ronnie, W and Obama are representatives of Wall Street and work hard on making us drop our pants and bend over. Big Dawg was the last president who wanted to use the surplus to enhance social security. No wonder both the right and the left hate his guts.

  14. bb in GA Says:

    I don't disagree with the bait and switch you posit. I am the beneficiary of a defined benefit pension and still need to work, not because it is necessarily too meager, but because we did not plan and save well enough.

    Boomer pigs…I think that is the root of our problem. We did not do our due diligence and lived too much in the moment…man.

    I think the stats will back me up, sadly

    //bb

  15. Bill Leahy Says:

    Great article!

    But I think you are too harsh when you say older people look bad working. I think if you were to visit any Walmart and have an 80 year old hand you your cart (smiling) when you entered the store you would quickly change your mind.

    My life goal. Be a WalMart cart-hander-outer…

  16. Sarah Says:

    One of the plays I had to read for the Hispanic lit class I just finished was called "Historia del hombre que se convirtió en perro" (The Story of the Man who changed into a Dog). It was about this fellow who spent nearly a year looking for work, and was told "not hiring" everywhere he went. He was at this one place where he finally hit the end of his rope and refused to leave while talking to the owner about whether he could offer him something. "You have nothing for me?" "No! No vacancies! Can't you read the sign?" "Yes, I read it. You have nothing for me?" "No! No vacancies!" "A lathe operator?" "No!" "A mechanic?" "No!" "A night watchman! How about a night watchman?" "Well–the night watchman's dog recently died after many years of loyalty, and we need a new one. Can you get down on all fours and bark?"

    He reluctantly took the position of night watchman's dog (because he needed the job that badly) and wound up in the dog pound, where they were stunned to find this guy had changed into a dog wearing a man's suit. The dude's friends came around looking for him and his wife had to tell them she didn't know how he was because he was in the dog pound after he attacked somebody who tried to help him. This play was actually intended as "black humor," but we did talk about the fact that there are a lot of people who are desperate for work and a lot of old people who aren't able to retire, and these people aren't going to find a story like this very funny.

  17. deep tin Says:

    @Bill Leahy:

    Walmart eliminated those jobs because they're trying to make things EVEN CHEAPER. Of things NEED to be cheaper because that means fewer people will have jobs.

    http://jobs.aol.com/articles/2012/01/27/walmart-greeters-will-no-longer-greet-at-the-door/

  18. LK Says:

    @Major Kong: in the early '00s, Israel changed the retirement age from 65 to 67 (and from 60 to 64 for women). There was a lot of discussion on how this can be done while balancing the "positive" effect that this would have on people's pensions, and the negative effects (no scare quotes) it would have on promotions, unemployment and people's wellbeing and mood. They ended up advancing the retirement age by four months a year (a 1:3 ratio), which seemed like a reasonable compromise. Applying it to your case, it would have made the backlog build-up over a much longer period, during which people could try and adjust.
    Don't know if this was attempted or even discussed in the pilots' unions, though.

  19. Big dog Says:

    The current push is to eliminate overtime pay..who says the Civil War ended slavery?

  20. Xynzee Says:

    @BigDog: in Australia there's a push for ending "penalty rates". Ie better pay for working evenings, nights, weekends, public holidays…

    They say (employer groups that is) that people like the flexibility that these shifts provide.
    Well if they took the time to ask me, they'd find I work their crappy job/hours because its the only one going, and it's the penalty rates that give me enough to eat (just).

    Or that Muslims don't get the same treatment for working Fridays so why should Sunday be special? Or that the Muslims/Asians are more than happy to work on Christmas Day.
    Why thank you Multiculturalism, and allowing yourself to be used as yet another way to screw base earners.

    Communists maybe godless, but the god the capitalists have convinced the Christians they believe in isn't the God that they believe in.

  21. Well, mostly Says:

    Nothing shows how well and truly fucked we are quite like the move to 401k plans.

  22. Bernard Says:

    lol, the same old story of the AynRandians coming down to get over those who aren't Rich or born into Wealth. Work hard, boy, you'll get rich. just hope nothing bad happens to the economy, your health, or you job. such a great scam to blame the "losers" for being "lazy". Gotta love the con and the grifter, and also the dumb white Southerners for pulling the con on the rest of America, via The Republican Party.

    thank St. Ronnie, especially. we all owe him, so much, we will never be able to repay him. losing jobs and income was part of the set up so we could never "repay" St. Ronnie for how he has screwed us. and that of course, was why we are in the economic problems/fix we are today.

    getting over the dumb white voters was/is still so easy. BB just proves it once again. i love his rationalizations. Shit happens? you mean even to people like BB???. if only he had saved more, he wouldn't be in the fix he is in now. Gosh, BB,why didn't you figure your "errors" in ahead of time. Those dumb Boomers . they never knew what was in store for them. they "should have" known, Right?!! Ayn Rand and Socialism and all that! Proud to be a Murkin!!

    thanks for putting in your "2 cents" BB. makes my point, though i gather you still don't "get" it.

  23. Gerald McGrew Says:

    So I see this sort of thing posted in all sorts of blogs, op-ed pieces, and even front page news stories (WaPo had a piece on this, as did the NY Times). The narrative is the same…

    Pensions are a thing of the past, contribution plans under-perform, wages have stagnated, people aren't saving enough, corporations are consistently making historic profits, and the uber-wealthy continue to amass more and more of our country's wealth.

    That's the narrative that's recited over and over and over and over…ad nauseum.

    What I rarely (if ever) see are prognostications and/or definitive calls to action. Are we just expecting these trends to continue on until the whole system collapses into a French Revolution event? Are we all going to get to storm the buildings on Wall St. and forcibly "take what's ours"? Are groups of liberals finally going to wise up and 1) vote, and 2) vote strategically? Are liberals going to organize en masse and start to effect real, tangible changes?

    I KNOW what the situation is now. I KNOW it's bad and continues to get worse. Yet when I talk about this with my fellow liberals, the responses I get oftentimes baffle me. They talk about the Green Party, or how political activism doesn't really matter because "both parties are beholden to Wall St. anyways".

    I say bullshit. If all that's true, how the hell did the tea party effect such a dramatic change in the GOP, and how are they so effectively driving public policy now? While much of their policy positions are downright nuts, their strategic approach is definitely something to be copied.

    Liberals need to start "primarying" the DNC. We need to put forth truly progressive, liberal candidates at the primary level, and actually show up at the primaries and support them. Then we need to actually show up at the general elections–especially off-year elections–and vote them in.

    The data is pretty clear. Increased voter turnout = more wins for the DNC. The Gingerich "revolution" and the 2010 tea party wins were both in off-year elections with low voter turnout.

    Anything short of this sort of massive, organized effort and I fear nothing is going to change any time soon.

  24. Doctor Rock Says:

    I take exception- Ted Lowi is still kicking ass at Cornell, and he's past 80. I visited and he's still (still meaning 2 years ago) as spry as he was in his 50s and 60s. But he's the rare kind.

  25. Major Kong Says:

    The reason for the push to raise pilot retirement age was due to Delta and United pilots having lost their defined benefits pensions (called an A-Fund) in airline speak.

    The idea was to give them 5 extra years to try to make up some of the loss.

    That's why it wasn't phased in.

  26. doug Says:

    'watching a 77 year old perform most jobs is not an inspiring sight'
    Yes, I think that every time I see a picture of the Supreme Court.

  27. Argleblargle Says:

    I dunno, all this is true but I still feel like there are advantages to the defined contribution system. Namely, what happens to the pensions of people who switch companies a lot, or if their company goes bankrupt?

    What we need is a "public option" 401k, where you can put your money in a government run plan that charges minimal fees, is very transparent, and has some sort of protection for people who retire during a downturn. That would be a way better deal than any privately run 401k that exists now.

  28. sluggo Says:

    bb,

    It is about income, not failing to plan or 'living in the moment'. Don't accept people telling you that it is your fault. You strike me as as a frugal, conservative (in the personal sense, as well as political) guy, not some wild eyed spendthrift. Buying a bass boat or taking your wife on vacation is not a bad thing to do, even if Dave Ramsey says it is.

    It is sure a lot easier to save money when you make money, but for most of us, life gets in the way….caring for aging parents, paying light bills, fixing the car. Speaking of Dave Ramsey, even he tells an occasional caller,,that they don't have a spending problem they have an income problem.

    In this country we have an income problem.

  29. Tim Says:

    As a counterpoint to your point about elderly lecturers, here is a man who is still going strong at 80 despite missing two legs and his eyesight. But I think he just has a sheer strength of will that most of us don't have.
    http://magazine.uchicago.edu/0856/features/sally.shtml

  30. Nunya Says:

    I'm all for the "public option" and I believe that Social Security is the ideal source for that option. If we doubled the current contribution level to 6% for employee and employer (no opting out of matching when times get lean) we could expect retirees to have enough to actually live on in their golden years instead of scraping by and eating cat food as it stands today.

    Pensions are a thing of the past only because lifelong employment is gone. People meed the flexibility to change jobs but to have a reliable source of retirement funding when their time comes.

    Allowing seniors to make room for new grads will buoy employee bargaining power and raise wages as well as providing a launching pad for real careers.

    Our current system of 401K's is and always has been a scam. The proposed involuntary contributions into a mutual fund program is currently being bandied about in congress. This is nothing but a blind giveaway to an already bloated financial sector.

  31. Big dog Says:

    I'm not sure why some of you have decided to kick seventyseven year olds asses. I'm seventyseven and although much of me is either leaking or drying up, I'm still pretty handy at a whole range of jobs. Lighten up on us, dudes.

  32. bb in GA Says:

    @bernard

    you are probably right (and a real sweetheart too…)

    @sluggo

    you are right.

    //bb

  33. Andrew Says:

    You should google "lump of labor fallacy."

  34. Phoenician in a time of Romans Says:

    The American, and therefore the rest of the developed world, version of capitalism: support the rich and screw everyone else. Pensions are just one instance of this approach.

    Which is, of course, completely different from an aristocratic feadul system…

    Arbeit macht frei, my friends, arbeit macht frei.

  35. Phoenician in a time of Romans Says:

    Feudal even – when will I learn to proof read before hitting comment?

  36. mothra Says:

    If all that's true, how the hell did the tea party effect such a dramatic change in the GOP, and how are they so effectively driving public policy now? While much of their policy positions are downright nuts, their strategic approach is definitely something to be copied.

    Erm, you DO realize that the "Tea Party" is actually a bunch of useful idiots being propped up by the oligarchy, right? Yeah, yeah, yeah–I hear you say that a lot of the Tea Party candidates answer to no one, vote the way their lunatic constituents want them to, etc. That could be, but their intransigence only bolsters the oligarch's goals. They don't want any sort of movement from Congress, other than backward movement. The "Tea Party" is far from a grassroots movement.

  37. Dick Nixon Says:

    My 401k has been a very, very, good deal. Why? Because it existed IN ADDITION to a defined benefit pension plan, with my employer adding .50 on the dollar. This is of course a big anomaly in that it happened at a time in my prior employers history when they inadvertently wildly overfunded the defined pension plan, leaving them with no liabilities for pension contributions. Yes, lucky me.

    But not my point. I seem to remember the Clinton administration proposed a similar plan of investment that would be tied to social security with a partial government match of individual contribution–and of course fully vested and portable. This augmented approach would have made a critical difference for retiring boomers. Of course it was decried as creeping socialism and never made it off the ground.

    Sigh. Republicans continue to be the reason we can't have nice things.

  38. Surly Duff Says:

    Don't forget the penalties associated with withdrawing any of that money from your retirement plans early. Sure, when you pull the cash out when you retire, it is considered taxable income (Roth IRA excepted). In addition to the taxes you pay on the $$ you withdraw from the account, you are required to cough up an extra 10% on the withdrawals you make before you are 60. Why? I have no idea. It makes absolutely no sense to me why an individual has to pay a penalty on money that he/she invested and wants to access before they retire. The IRS claims it is to discourage using up retirement funds for things other than retirement, but why should the government care how I access my cash? It never made sense to me, except that banks and financial institutions lose out on a lot of access to capital and pay out a lot of obligations if people try to cash out early. You know, it would be really bad for AIG, JP Morgan, and Goldman Sachs if people wanted to take their investments out of the market when it starts to free-fall like it was during the end of the housing bubble. So, basically, it is A-OK for the employees to watch their retirement accounts hit rock-bottom and get fucked by a collapsing market that was created by the financial geniuses of the world, but totally not cool to let the market also fuck those financial institutions.

    So, once again, the market can fail you and me, but financial titans of the universe must be protected. Ya know, for the interests of us all.

  39. Gerald McGrew Says:

    Mothra,

    Whether they're truly "grassroots" or not is besides the point. Either way, they're incredibly effective and have completely altered the course of history for this country.

    What are liberals doing in response? Blogging? Commenting on blogs?

    Look at the difference between the tea party and occupy wall st. The TP got their candidates into office who then voted the way they said they would. Whereas the best OWS can be said to have done is "change the national conversation", which if you look at what's being done today didn't result in shit. We have the sequester, continued austerity, and a POTUS who's proposing to cut SS benefits.

    As liberal as I am, I get so damned frustrated with "my own kind" for their consistent inability to organize and think strategically. Whatever you want to say about conservatives, at the very least they know how to effectively organize and accomplish their goals.

  40. HoosierPoli Says:

    "I say bullshit. If all that's true, how the hell did the tea party effect such a dramatic change in the GOP, and how are they so effectively driving public policy now"

    Because they were swimming downstream. If you're fighting hard to cut rich people's taxes, you'll never be unemployed and your words will always be heeded. It's remarkable, really.

  41. Sarah Says:

    @Gerald McGrew, what we need is leadership. We need to find people behind whom we can rally.

    @sluggo, if anybody deserves to be ninety years old and find himself still working and unable to retire, it's somebody who has the gall to yammer about his "libertarian fantasyland." Yes, it is his fault. He votes for it. He supports it. He talks it up at every opportunity. It would be the height of hypocrisy for him to dodge his own bullet when he helped hand the gun to the ones who are firing it.

  42. Gerald McGrew Says:

    @HoosierPoli, really? It's easier to advocate for benefits for the uber-wealthy at the expense of everyone else? If so, that kind of destroys the whole notion of a "populist movement", doesn't it?

    @Sarah, yup. Leadership that inspires everyday liberals to actually get active and involved would be awesome.

    To my general point, I read this today…

    http://nomoremister.blogspot.com/2013/05/did-anyone-read-rest-of-that.html

    "What I think is going on here is that the right-leaning part of the electorate is paying a lot of attention to this race because right-wingers in America always pay more attention to politics than (most of) the rest of the population — the right has successfully turned political ranting into mass entertainment that keeps the base engaged."

    That's the same point I'm making, just manifested in a different way. Only until liberals get as active and engaged as the right will we see real changes. Until then, public policy will be set by those who actually pay attention and show up.

  43. Big dog Says:

    Mea culpa. I am a relativist…I do not believe in absolute anything. Every point of view I assume,on examination fractures into myriad perspectives,,kind of like the eye of a fly. I definitely believe and hope for a better world, but i'll be damned if I know how to get there or even what it would look like. This makes me a very poor candidate for any sort of political office. Right wingers , absolutely sure of their beliefs, have no difficulty in standing up for any office and convincing the populace that they possess the truth. Do we need leaders who can improve our pitiless situation…yes, but be very careful what you wish for. You just might get it.

  44. Barry Says:

    Major Kong Says:

    "The reason for the push to raise pilot retirement age was due to Delta and United pilots having lost their defined benefits pensions (called an A-Fund) in airline speak.

    The idea was to give them 5 extra years to try to make up some of the loss.

    That's why it wasn't phased in."

    In other words 'we stole your pension, but you can work longer to (very) partially make up some of the loss'.

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