“The golden years” — some marketing guru coined that term to mean the time when people retire and can relax and enjoy life.
The golden years have become bit tarnished in the midst of an economic downturn. As companies, cities, counties and states battle over budgets, the traditional pension that many retirees rely on is being left in the dust.
In one case, Baltimore County is battling a $19 million lawsuit over making older workers pay more into the pension system. In another, Bethlehem Steel retirees are having benefits cut because of overpayment. Around the nation, municipalities are fighting unions and retirees over the programs.
According to the Pension Rights Center, about one out of three older Americans has a pension. A new report by the National Center for Policy Analysis says public pensions are significantly underfunded. The report claims that state pensions could grow to about $7.9 trillion in the next 15 years but they could be underfunded by as much as $1.75 trillion. Not exactly pocket change.
Workers once relied on what are called defined benefit plans. Those are still typical for public sector plans. The employer guarantees the amount you receive no matter how the market performs. So they might have to keep dumping money in a plan to meet that commitment. That means the traditional plan is expensive. Employees live longer and the pension plan will take care of us that whole time.
Over time, many employers have either given up paying retirement or switched to what are called defined contribution plans. They are more popular in the last couple decades because they limit employer liability. They owe you only what they give you. That makes it simple and easier to manage for an employer and dumps the burden on you.
But even companies that contribute to 401(k)s are having to rethink those contributions in a down economy. FedEx Corp. is one of at least two dozen public firms suspending pension contributions. The firms are in survival mode.
Both plans have their supporters. The traditional plan works great when everything goes perfectly. But it relies on people staying in jobs more than most Americans do now. It also places a huge burden on companies to pay for the pension. Unfortunately, as governments and car companies can tell you, the traditional model is unsustainable. When the company can’t meet its obligations, it turns to the Pension Benefit Guaranty Corp. which insures the funds. So that means we bail out the pension and retirees get only partial payment.
While 401(k)s are easier to use and can travel with you from job to job, they usually only provide a salary match. That relies on the worker putting money in retirement, and many do not.
In those plans, it’s up to the worker to plan his or her own retirement. That isn’t easy, but it’s the way it should be. If you want to enjoy the golden years, you need to be setting aside the gold every step along the way.
Dan Gainor can be seen on the Fox Business Network. He is T. Boone Pickens fellow at the Media Research Center’s Business & Media Institute, a career journalist and media commentator. He can be reached at [email protected].
