Looking to Locate The Comfort Zone
Sunday, July 24, 2005
In the late 1970s, the nation appeared to be getting many of the economic problems of old age under control.
A 1974 revision of federal pension laws required that employers set aside and invest the funds that would pay for pensions they promise their employees. A few years later, higher withholding, a tweaking of eventual benefits and other changes seemed adequate to deal with the Social Security system's problems for the foreseeable future.
Special tax-deferred arrangements were written into the tax laws to encourage workers to save for themselves, strengthening the third leg of the three-legged stool -- company pension, Social Security and personal savings -- that was the traditional image of a secure retirement.
None of it worked out the way planners intended, at least not in the long run.
Because of numerous loopholes, tightening the pension rules failed to eliminate underfunding by many employers. But it did drive a lot of companies to terminate their pensions. In fact, the special tax-deferred savings arrangements -- yes, those would be your 401(k) plans and similar retirement accounts -- provided a seemingly painless way for employers to replace the traditional pension, escaping the new rules and shifting the risks of retirement saving onto their workers.
However, employees have not participated in their 401(k) and similar plans in the numbers or at the contribution levels needed to make those plans effective providers of retirement security.
And now, the problems with Social Security that policymakers deferred are no longer all that far off.
"There's certainly a lot of gloom and doom to go around," said Olivia S. Mitchell, professor at the University of Pennsylvania's Wharton School and director of its Pension Research Council.
Today, elected leaders, policymakers and private-sector experts are casting about for ideas that will enable the coming generation of retirees to live in reasonable comfort but won't cost so much that they bust the government and/or employers.
Major legislation is in the works to toughen the funding requirements on traditional pension plans. A bill approved last month by the House Committee on Education and the Workforce is awaiting action in the Ways and Means Committee, and Chairman Charles E. Grassley (R-Iowa) of the Senate Finance Committee unveiled his version Friday.
However, those measures focus primarily on traditional pensions and the financial health of the government agency that insures those plans. The agency, the Pension Benefit Guaranty Corp., is facing a huge deficit after taking over a number of large pension plans from failed companies in the steel and airline industries.
Getting considerably less attention are proposals for providing retirement security in an environment where traditional pensions and Social Security count for less and less. While numerous, most of the proposals being floated are variations on the "work longer, save more" theme that runs through much expert thinking on retirement. And a number seem aimed at benefiting financial services firms as much as retirees.