A recent article in the Wall Street Journal, Is America's Favorite Retirement Plan Broken, describes the current state of 401(k) plans. The article provides evidence that these plans may need to be fixed for them to create successful retirement outcomes for the millions of Americans that participate in these retirement investment vehicles. While the main point of the article is to point out plans of policymakers to make the 401(k) more equitable in respect to the way taxation is handled, other points made in the article piqued my interest.
This article is re-posted from our Administrator blog, the blog we do specifically for our administrative contacts who work on the employer reporting side of LAGERS. If you're interested in subscribing to this blog we'd love to deliver you this great content straight to your inbox once a month.
- About half of Americans age 55 and older have nothing saved for retirement. However, 20% of these do have access to a defined benefit pension plan.
- Defined benefit pensions are the preferred retirement plan for state and local government employers.
- 39 employers have chosen LAGERS defined benefit plan for their employees within the last year. Almost all switched from a 401(k)-type plan.
- Defined benefit plans, like LAGERS, help government employers attract and retain good workers to serve the community.
Reform has been the hot topic in the world of public employee retirement plans for years. Too often the conversation immediately turns to tossing out defined benefit pensions for government workers and replacing them with individual investment accounts like 401(k)s. Supporters of the 401(k) approach say these plans are a better fit for the modern worker; they are always fully funded; they give workers control over their own money; the public sector should follow the private sector's lead in eliminating pension plans. However, this thinking does not consider the uniqueness of public sector jobs, workers' lack of understanding of financial products, the impact on workers' retirement security, or the effect on the employer and taxpayers.
A recent report published by the U.S. Government Accountability Office (GAO) concludes that retirement security for Americans is on shaky ground and recommends Congress do something about it.
The September 30th Washington Post article, The New Reality of Old Age in America, by Mary Jordan and Kevin Sullivan is an eye-opening look at the state of senior citizens in the United States. The main takeaway from this piece: the days of retiring after a career of work with a gold watch and secure lifetime income are over for many Americans. The new reality is one where Social Security is the primary source of income with a full or part-time job as a supplement, forcing individuals to live out their remaining days near the poverty line.