The Good Old Days
There’s been a lot of talk lately about the need to fix the “broken”
401(k) plan. Some say it
disproportionately benefits higher-paid workers, some claim it can’t provide a
level of retirement income sufficient to meet lower-income needs, and still
others maintain it can’t provide that level of security for anyone.
And, as often as not, those sentiments arise as part of a discussion
where folks wistfully talk about the “good old days” when everybody had a defined
benefit pension, and people didn’t have to worry about saving for retirement.
Only problem is—those “good old days” never really existed, nor were
they as good as we “remember” them.
Consider that only a quarter of those age 65 or older had pension
income in 1975, the year after ERISA was signed into law. The highest level ever was the early 1990s,
when fewer than 4 in 10 (both public-
and private-sector workers) reported pension income, according to EBRI
tabulations of the 1976–2011 Current Population Survey (in 2010, 34 percent had
pension income).
Perhaps more telling is that that pension income, vital as it surely
has been for some, represented just 20 percent of all the income received by
those 65 and older in 2010. In the “good
old days” of 1975, it was less than 15 percent.
In fact, in 1979, just 28 percent of private-sector workers were
covered “only” by a defined benefit (DB) plan (another 10 percent were covered
by both a DB and a defined contribution plan), according to Department of Labor
Form 5500 Summaries. In other words, even
in the “good old days” when “everybody” supposedly had a pension, the reality is
that most workers in the private sector did not.
Even among those who worked for an employer that offered a pension, most in the private sector
weren’t working long enough with a single employer to accumulate the service
levels you need for a full pension. Nor
is this a recent phenomenon; median job tenure of the total workforce has hovered
about four years since the early 1950s (in fact, as EBRI’s latest research
points out, the average median job tenure has now risen, 5.2 years).[i] For private-sector workers, fewer than 1 in 5 have ever spent 25 years or more with
one employer. Under pension accrual formulas, those kind of numbers mean that even
among the workers who qualify for a pension, many are likely to receive a negligible
amount because their job tenure is so short.
Ultimately what this suggests is that, even when defined benefit
pensions were more prevalent than they are today, most Americans still had to
worry about retirement income shortfalls.
Indeed, Americans today do have some additional concerns: longer lives
and longer retirements to fund, as well as the attendant issues of higher
health care costs and long-term care. For
most workers—past and present—the more savings options they have, the better;
and the easier we make it for them to save, the better. That is the power of payroll deduction,
matching contributions, and employer action.
When all is said and done, we’re all still challenged to find the
combination of funding—Social Security, personal savings, and employment-based
retirement programs—to provide for a financially satisfying retirement.
Just like in the “good old days.”
- Nevin E. Adams, JD
[i] EBRI Notes, December 2010, http://www.ebri.org/pdf/notespdf/EBRI_Notes_12-Dec10.Tenure-CEHCS.pdf
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