Streams

Private Sector Pensions 101

Wednesday, March 16, 2011

On the Brian Lehrer Show today at 11am. Audio and a recap will be posted here by 2pm.

Robert Hiltonsmith, policy analyst at Demos, and author of their report The Failure of the 401(k)looks at the current state of private sector retirement plans and what alternatives there are to the 401(k) deferred savings plan.

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Comments [16]

Ralph from Mahopac, NY

One thing I have never heard concerning this is: there are 65 million Baby Boomers socking away money in the stock market in 401Ks, and IRAs, paycheck after paycheck. This money is buying stocks and raising the market by billions of dollars. As the Boomers retire no longer will the tide of their income go into these accounts, but will flow out. Eventually there will come a point when this will deflate the market as stocks are constantly sold for the Boomer to live. Won't there eventually come a tipping point that will send the market into a deathspiral as retirees panic and pull everything out? Or should I just listen to my banker, they never steered me wrong before.

Mar. 17 2011 09:29 PM
JDS from Jersey City

I felt that the guest glossed over who would pay and how much. If you have a defined benefit you have to have a varied contribution because the economy is always in motion. That is why they are called defined benefit as opposed to defined contribution (401k). I believe that the guest would suggest that when/if the economy tanks and the contributions need to increase to guarantee the defined benefit that it should be the employer or gov't that picks up the bulk of difference. That is exactly what we have now with underfunded pensions. This is a key part of the conversation that should be discussed further.

Mar. 16 2011 01:06 PM
Dan from New York

Regarding the callers comment on the earned income requirement for IRA. This requirement has never made complete sense to me. As a recent grad student I was working in a lab making ~$20K a year working without any retirement benefits (typical for most grad schools). In my situation the only potential retirement tax shelter option was an IRA, yet even this wasn’t available because I was paid via a federal fellowship which is not considered earned income. I was required to pay income taxes on the earnings, but wasn't allowed to save any of it in an IRA. I've heard the same situation with many research postdocs, a job that can often last 6 years after grad school (grad school can lasts for 6-8 years). There are people that are 40 years old (with already low wages) that can’t place anything in an IRA. I’ve even heard of researchers taking on part time jobs just so they can contribute to an IRA. It’s hard to believe that during the prime period of life for saving for retirement (in order to take advantage of gains) there are no retirement options available to many researchers.

Mar. 16 2011 11:55 AM
Bryan from USA

We already have a retirement system, it's called Social Security. Why do we need to create another entire bureaucracy? Why not instead increase the contributions to the existing system, apply a little 'social' responsibility such as not capping the contribution, meaning that millionaires have to pay X percent of their gross income even if payments are capped; and allowing one to contribute more of their income to their account if they so choose. We could also write new legislation to protect SSI from being used as a revolving credit account by the government. Perhaps we should ask Senator Sanders to write the legislation. Creating another profit making vehicle for those who produce nothing but profit generously from the effort and hard earned savings of the middle class solves nothing.

Mar. 16 2011 11:40 AM
amalgam from Manhattan by day, NJ by night

Ah yes, there are certainly no need for unions, either public or private.

Add employers lack of accountability in stripping pensions/401 k from their employees to the list of many, like "right-to-work" (fire) laws, that give employers almost complete control and leaving employees to deal with whatever arbitrary decisions are made on their behalf.

Most understand we live in a "risk" society - whether on Wall St. or main street - it's just that people tend to forget that instability until it affects them and their neighbors, and they have little or no options or recourse on the other end.

Mar. 16 2011 11:30 AM
Jon Young from State Islnd

A lot of folks are getting hit with penalties (10% of the amount withdrawn and also taxation at whatever rate their taxable income falls into) because they do not know all the exceptions and consequences of premature withdrawals from 401Ks and also IRAs. Changes should be made to the exceptions to penalties to allow more people off the hook- such as people using retirement accounts to continue mortgage payments while in the process of restructuring a mortgage.

Mar. 16 2011 11:29 AM
ash idnani from nj

the 2 legged stool i propose consists of soc sec (current workers pay for current retirees), and your mandated and voluntary contributions. The latter one is funded by 3% contribution by employers and unlimited contributions by employees towards individual's a/c maintained by the federal govt and paid back to the individual as an annuity upon retirement. Only the fed govt is big enough to maintain this, not the stock market which is legalized gambling benefitting some financial concerns.

Mar. 16 2011 11:26 AM
teresa from manhattan

A basic approach for future generations would be to begin discussing basic financial facts on a regular basis to children in junior high/high school (even earlier). As overloaded as the school systems are today, this education can help these future adults make sound decisions regarding retirement. Many adults do not consult financial planners and make their decisions hoping for the best. These are basics that all young children will need to be successful contributors in the future, and maybe help the SS issues down the road.

Mar. 16 2011 11:26 AM
john from New York

The employers these days are running away from all obligations to the employees retirement. When it comes to matching they can easily renege on it. This is completely unfair. If there are no Defined benefits, employers should be at lease required to match 401ks and vest it immediately.

Mar. 16 2011 11:23 AM
bob from queens

brian: last week, your guest felix salman observed that with so much of the economy privately held, the market is a poor vehicle for long term savings.

the simple fact is this country doesn't take care of its people. if you're not actively working, you don't matter--and the 401(K) proves that.

oh, you mean the 401(Krap)? yet, another fee generator for the wall street parasites.

Mar. 16 2011 11:22 AM
Lamar from Woodhaven

I work at a university and have a 403(b) from TIAA-CREF. I am required to contribute 4.5% of my salary and my employer contributes 7.5% What is the difference between a 403(b) and 401(k)? Should the private sector move to this model?

Mar. 16 2011 11:22 AM
Chris from Manhattan

Isn't your guest omitting two critical corporate interests behind the the creation of 401k's? One was the desire of corporations to shift the financial risk of retirement programs off of themselves and onto employees, and the other was the desire of the asset-management industry for a whole new source of income. Viewed that way, maybe the 401k system was never intended to "work" for employees.

Mar. 16 2011 11:20 AM
Chris from Manhattan

Isn't your guest omitting two critical corporate interests behind the the creation of 401k's? One was the desire of corporations to shift the financial risk of retirement programs off of themselves and onto employees, and the other was the desire of the asset-management industry for a whole new source of income. Viewed that way, maybe the 401k system was never intended to "work" for employees.

Mar. 16 2011 11:20 AM

The US economy was built on the BUY NOW, PAY LATER concept. And "buy now" meant mainly buying on credit. Buying a house on a huge mortgage, and not saving up to buy one with cash. Basically, getting into deep debt, and hopefully paying it off with interest just in time when you can no longer work. The concept of saving for one's old age, or for one's own health care, was pushed aside some 60 years ago.

And now, the Piper and the Repo man have arrived at the same time.

Mar. 16 2011 11:19 AM
Chris from Manhattan

Isn't your guest omitting two critical corporate interests behind the the creation of 401k's? One was the desire of corporations to shift the financial risk of retirement programs off of themselves an onto employees, and the other was the desire of the asset-management industry for a whole new source of income. Viewed that way, maybe the 402k system was never intended to "work" for employees.

Mar. 16 2011 11:18 AM
KT from NYC

Say that you have saved $350,000 in your 401K. After taxes, that will total about $250,000 (if you're lucky). That will provide $20,000 per year over and above social security, for 12-13 years; if a couple is collecting $2500 per month in social security or $30,000 per year, they can live on a middle class income of $50,000 per year for 12 years, or a longer if the 401K fund is withdrawn over the 12 years and earn a little money. Then they are broke, except for social security.

A traditional pension is an annuity; it pays until you die. The solution is pensions. We can help by contributing, as we do with social security -- or just increase social security and let us pay more into that fund. Personal savings will never work for middle-class Americans, who will inevitably outlive their savings if they survive more than 10 years into retirement.

Mar. 16 2011 11:14 AM

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