Dude, Where is My Retirement?

Will you have enough money for retirement? Once taken for granted, the certainty that promised benefits will actually be there when workers retire has become more of an open question. The good news is that Social Security can pay full benefits for almost four decades. This is a certainty that private benefits do not offer. 401(k)s and traditional pensions have been decimated in the recession, and, what's worse, many employers are making retiree health insurance less affordable for future retirees as the cost of health care skyrockets. To top it all off, the Bush administration has, whenever given the choice, moved towards making retirement less secure, most recently by threatening to veto a bill that would offer much needed relief for traditional pension plans. This is the bad news. If the administration continues down this path, many more retirees will not have enough money for retirement.

Securing retirement benefits is no small feat. Arguably the most urgent problem is the rapidly rising cost of health care, especially for prescription drugs, at a time when employers are cutting back on retiree health insurance. The Kaiser Family Foundation reported earlier this year that 38 percent of employers with more than 200 employees offered retiree health insurance in 2003 – down from 66 percent in 1988. And many employers who still offer it plan to shift costs onto retirees. Yet, the Bush administration has put its weight behind a Medicare prescription drug plan that fails to control rampant health care costs and leaves many retirees out in the cold. Already the projected costs for the Medicare plan are 30 percent higher than the original and misleading White House claim.

Moreover, many workers do not even have a pension to begin with. More than half of all private-sector workers have no pension where they work, a fact that has remained unchanged for the past thirty years, despite large government efforts to increase pension coverage.

The Bush administration's only response has been a warmed-over tax cut for the wealthy through Retirement Savings Accounts (RSAs). With RSAs, people could put away up to $5,000 a year after taxes and earn interest and withdraw money tax free. While this sounds appealing, it primarily helps the wealthy since they are already maxing out on other tax advantaged savings, and since they are likely to actually face substantial income taxes in retirement. Because RSAs will allow high-income earners to reap tax advantages outside of a company pension, business owners and executives will have less of an incentive to establish pensions for themselves and their employees. Thus, RSAs could actually result in less pension coverage.

Remember Enron? While most 401(k) plans continue to feel the effects of the corporate scandal, the government has done little to protect 401(k)s from being decimated in a similar fashion. The U.S. House of Representatives has twice passed the mislabeled Pension Security Act – "strongly" supported by the White House – which offers a Faustian bargain that would ultimately make pensions less secure and reduce pension coverage. While the bill allows workers to get more quickly out of their employer's stock, it also repeals existing worker protections by allowing mutual funds and other investment managers – the very same companies now accused for misleading and taking advantage of ordinary investors – to give workers conflicted advice on their 401(k) accounts. At the same time, the bill makes it possible for companies, which can already exclude 30 to 80 percent of regular workers from their pension plans, to exclude even more workers from their 401(k) plans and pension plans.

The Bush administration must have asked itself, why stop with 401(k) plans, when you can also worsen the lot for more than 40 million beneficiaries of traditional pensions? When temporary relief for these defined benefit plans was about to expire in 2003, the administration pushed for a technical rule change that was opposed by labor and businesses alike. The change would have made pension plan funding more cumbersome and less predictable. CIEBA, an association representing 110 of the country's largest pension plans, estimates that 45 percent of plans would reduce benefits if this rule change were enacted.

The Bush administration is waging a two-front assault on retirement benefits. On the private side, the administration has either exacerbated or ignored the growing retirement security risks. On the public side, the administration has decided to target the only safe bet Americans can rely on in retirement – Social Security and Medicare – for privatization. If the administration gets its way, retirement security, a condition Americans should expect in their later years, will no longer be a sure thing.

Christian E. Weller is a senior economist at the Center for American Progress.

This column originally appeared on TomPaine.com on April 15, 2004.