Cynthia Estlund is the Catherine A. Rein Professor of Law at New York University.
‘Downhill from here” is an exquisitely ambiguous phrase for the state of retirement security in America. It might suggest a restful and well-earned glide down the back of the mountain that one has climbed in a lifetime of hard work. But the same phrase can mean nearly the opposite — a descent into hardship or suffering.
It is the latter, darker meaning that sets the tone for Katherine S. Newman’s excellent new book, “Downhill From Here: Retirement Insecurity in the Age of Inequality.” But Newman’s title also evokes the contrast between what retirement means in today’s America and what it is supposed to mean.
Newman is a gifted writer and the author of more than a dozen books, including “No Shame in My Game,” about the travails of the urban working poor. As she has done in her previous work, Newman creates vivid individual portraits in her latest book to humanize her analysis.
We learn about the retirement woes of truck drivers and telecommunications and airline workers caught in the cross-currents of deregulation and industry restructuring; of Detroit civil servants in the wake of municipal bankruptcy; of would-be retirees forced back into a hostile labor market to pay their bills; and of the very poor, who are barely surviving. As Newman’s title suggests, the crisis of retirement insecurity reflects the larger problem of economic inequality in today’s America.
Running through Newman’s wide-ranging narrative is a river of broken promises. Take, for example, Lisa Hannigan, whose career began with the monopoly Bell System, known as Ma Bell, and ended at Verizon. Shortly after nudging Lisa into early retirement, Verizon spun off her division — along with its $9.5 billion in pension liabilities — into a new company that seemed designed, or at least destined, to fail. After it did fail just two years later, Lisa and her husband, who had left the company on disability years earlier, found their pensions reduced and their retiree health benefits eventually eliminated. Newman quotes John: “They said they were going to take care of [me] for the rest of my life. They just lied. Totally lied. . . . They don’t care who they walk on, who they step on.”
Individual stories like these underscore the betrayal and anger that lie between the lines of the larger structural lessons Newman draws about retirement insecurity.
Past crises of retirement insecurity produced landmark reforms — the Social Security Act of 1935 and the Employee Retirement Income Security Act (ERISA) of 1974 — which shape our current retirement system.
Social Security, inaugurated in the midst of the Great Depression, provides a basic retirement income for nearly everyone. It is a federally administered pension plan that promises a fixed monthly payment based on work history and is funded through a mandatory payroll tax. The Social Security system faces enormous demographic pressure, as the ratio of worker-contributors to retiree-beneficiaries has fallen from 42 to 1 in 1945 to less than 3 to 1 today. People live longer nowadays, and they draw benefits longer, and that trend would challenge any retirement system yet devised.
The more immediate problem with Social Security for most of Newman’s subjects is that monthly benefits, though reliable, are too low to allow most retirees to make ends meet. So most Americans count on a combination of employer-sponsored pension benefits and private savings (like a 401k plan) to supplement their retirement income. Both are voluntary, and that is part of the system’s vulnerability.
In the old days, most employer-sponsored pension plans were, like Social Security, defined-benefit plans; they promised workers a specific monthly pension tied to age and years of service, and enabled workers to plan their lives accordingly. But a defined-benefit plan must be funded on an actuarily sound basis, with an eye to life expectancies and market performance. After unregulated and underfunded pension plans began to collapse in the 1960s, Congress enacted ERISA to shore up the stability of the private pension system.
The current pension crisis in the private sector reflects both flaws in ERISA’s regulatory fix and some ugly aspects of 21st-century capitalism. To wit: When times were flush and pension plans became overfunded, companies were able to siphon off the excess for their own use. But when markets headed south and funding fell short, many found ways to offload liabilities, leaving pensioners holding the bag.
“A pension was once regarded as something of a sacred bond between an employer and loyal employees,” Newman writes. No more. In the cutthroat economy wrought by globalization, deregulation and financialization, firms proved willing to betray their longtime workers and pensioners for the sake of fatter rewards to shareholders and top managers. The law is far too lax in dealing with the machinations that resulted from changing corporate norms.
When defined-benefit plans fail to deliver, beneficiaries’ sense of betrayal is palpable and focused. A more diffuse sense of betrayal arises from employers’ shift over the past few decades toward defined-contribution plans, which commit an employer to contribute certain amounts to an individual’s retirement savings but which promise no particular benefit levels. Those plans transfer both control and risk to beneficiaries, who are often ill-equipped to manage their retirement assets or to weather the financial downturns to which they are now exposed.
Then came the Great Recession, which shook nearly every pillar of the system as the value of the retirement assets of individuals and pension plans plummeted. Social Security, for all its flaws, was relatively unscathed. That suggests the value of a public pension system that is insulated, and that insulates beneficiaries, from cyclical turbulence, feckless employers and poor individual choices.
Other countries — Newman singles out Denmark, the Netherlands and Australia — have taken those concerns to heart. Their experiences show that a robust pension system requires greater public expenditures, a larger role for government administration and a higher share of gross domestic product than the United States has mustered. Above all, it requires a stronger shared commitment to ensuring a decent retirement income for all members of society.
Real retirement security is not unachievable. But it must be less dependent on the voluntary choices of employers and employees, and less dependent on employment as the platform for retirement savings. That is especially clear as steady employment in vertically integrated firms — the historic heartland of retirement security in America — cracks under pressure from outsourcing and automation.
Newman’s compelling portrait of the grim state of retirement security in the United States should serve as a catalyst for major reforms, much as a 1972 network TV special, “Pensions: The Broken Promise,” helped to instigate the last major round of pension reforms. That is hard to imagine in today’s poisoned political climate. But perhaps well-grounded and lucid chronicles like Newman’s can help to build the sense of urgency and shared purpose that will be needed to turn the tide.
By Katherine S. Newman
Metropolitan. 322 pp. $30