RETIREMENT

RETIREMENT

ENSURING RETIREMENT SECURITY

Retirement security is fast becoming a goal beyond the reach of most Americans. Our private pension system is fraying. Companies increasingly view bankruptcy as a business strategy to eliminate pensions. (Funny how they crack down on personal bankruptcy requirements yet business is permitted to continue to use bankruptcy to neglect its obligations) The bankruptcy code provides little protection for workers' retirement security. With the law's emphasis on facilitating reorganization at almost any cost, companies in elite industries are shedding their pension obligations with hardly a look back and workers who lose pensions are unable to persue a claim for those benefits in court.

A succession of healthy companies with marquee names and well funded plans are also turning their backs on their pension promises by freezing their plans or closing them to new hires. Many other companies are soon to follow.

Although workers' ability to achieve retirement security has long been premised on a system of mutual responsibility: government-provided Social Security; employer-provided pensions; personal savings: only Social Security now guarantees a universal benefit. Only 1/10 (11%) of private-sector employers now sponsor a defined benefit pension plan, down almost 1/2 from 25 years ago. For non-union workers, the situation is even more dire: only 15% of non-union workers have defined benefit pension plans, compared to 72% of union workers. And even this limited coverage is on the decline.

Across the country, the retirement security of public employees is also under attack through efforts to replace defined benefit pension plans with riskier defined contribution plans. (Think 401(k))

These trends portend poorly, not only for the economic health of the retirees, but also for the nation overall. Most of our 76 million baby boomers will face retirement with fewer assets than previous generations, if they are able to retire at all, as many will be forced to remain in the workforce to stave off poverty. These seniors, who will comprise an increasing share of the population, will be without the purchasing power that is needed for a healthy economy.

The facts about how much workers are saving for retirement are sobering and offer no hope that 401(k)s or other defined contribution plans will make up for the loss of traditional pensions without major changes, both in the design of the plans and the level of contributions. The average employer contribution to a defined benefit plan secures an individual worker a lifetime pension benefit worth $400,000. By contrast, half of all American families have no retirement savings whatsoever. Among families close to retirement (those headed by someone aged 55-64): nearly 2 in 5 have no retirement savings in a 401(k), IRA or other defined contribution account. Among those near-retirement families lucky enough to have some retirement savings, half have less than $85,000-enough for a monthly retirement income at age 65 of only several hundred dollars.

Moreover, individual saving plans, like 401(k) plans and IRAs, as they exist today, can not offer all the benefits of real pensions. Well-designed defined benefit pension plans provide benefits for all covered workers, provide lifetime retirement income, deliver valuable survivor and disability protections and may offer important early retirement benefits and post retirement benefit increases. By contrast, individual savings plans require workers to bear all the risk, are often insufficiently diversified, suffer from poor returns and typically carry very heavy fees and expenses.

The AFL-CIO calls on Congress and the President to enact legislation guided by the following principles:

Principles to Guide the Delivery of Retirement Income

Retirement security should be based on mutual responsibility, with financing and risk allocated equitably among government, employers and workers;
Every full-career worker should have the opportunity to retire at 65 with at least 70% of their pre-retirement income;
Retirement benefits should be portable;
Defined contribution plans should be structured to serve the interest of workers, not those of their employers or wall street;
Retirement plan participants should be represented in the governance or their plans