One of the key aspects of human efficiency is making decisions based on facts and data rather than ideological thinking. This is a critical part of having an efficient government and political system.
Past and previous retirees have enjoyed a system where everyone benefited from the productivity of companies. This is no longer always the case. And one of the major ways that this is impacting employees is in retirement.
In 1978 the tax code was revised to introduce what became known as the 401(k). President Jimmy Carter signed it into law as a way of allowing workers to stash a part of their salary into a tax-sheltered account as a part of their retirement savings.
Unfortunately, this also made companies think of a new way to reduce their future liabilities. According to a survey by Towers Watson, in 2000 about 70% of their respondents offered a pension or defined benefit (DB) plan to new hires. As of 2012, only 17% offered new hires a DB plan. Other data that I found elsewhere indicated that the number of Fortune 100 companies providing DB plans dropped from 89 to 11. And these numbers keep going down. There is almost no doubt that pensions will not exist for new employees in a few years if something is not done.
Even though many companies replaced their pensions with 401(k)’s, also known as defined contribution (DC) plans, these plans leave it up to the employees to contribute and invest the money in them, with their companies often matching the contribution with a certain percentage of company funds.
DC plans rely on workers making wise decisions regarding their contribution and investment decisions. Unfortunately, this is not always the case. And this brings up the age-old question of whether we should penalize people because of unwise decisions that they themselves made. The answer is not that simple because of the bigger issue that these same people will require help from society in the future to overcome their not-so-good planning.
The should also be noted that the majority of companies that eliminate or freeze their pensions did so to reduce the cost. And this is still a reason for companies jumping on the bandwagon.
The situation that we are heading towards in this country is one which the previous two generations did not have because many had pensions and other supplemental income programs such as Social Security which were not in question.
The issue that brought up the subject for this blog post was that even though many are raising red flags about a coming pension crisis, a recent article that I came across on CNBC increased my level of concern even more. The article discussed how the Republicans were quietly eliminated and changing two initiatives that were started during the Obama administration. So much for representing the American people.
One is the myRA program which is intended to help people without a retirement account start saving. The other was simply guidance from the Dept. of Labor to help states accomplish the same thing.
As the article points out, the logic as to why this was done was based on alt-facts. At some point in the future doing things like this will cost our society as we have to dig our way out of a hole that we could be solving now with much less effort. The next post will look into this subject further.
The goal of these posts is to provide the fact-based story behind issues that we are facing in this country. We can no longer allow ideology to make decisions for us and hold back our progress when the issues that we have are so easy to solve.