We’ve been highlighting the U.S. retirement crisis since KCS’s inception in 2011. As frequent readers of our Fireside Chat series and this blog will recognize, we’ve placed the blame firmly on the demise of the traditional defined benefit plan and the greater (almost exclusive) use of the defined contribution plan as the primary culprit. FINALLY, we have some realization from the financial world (thanks, WSJ) that there is indeed a retirement crisis and acknowledgment that the benefits of the DC plan may have been overstated.
The article highlights all the ugly stats that we’ve been throwing out, including; only 13% participation in a traditional DB plan for the private sector (down from 39% in 1979), only 30% participation in any type of retirement plan for the private sector, retirement savings of <$3,000 for the median family with a significant percentage of those not having any savings, etc. The numbers are staggeringly poor!
The “financial experts” have determined that an individual should retire if they have an account balance that is roughly 8 times their current income. Oh, boy, we are in deep trouble! Excessive fees, misaligned product (relative return versus absolute-oriented), poor oversite, and longer lives are just some of the reasons why this crisis is unfolding. However, the biggest culprit is asking untrained individuals to become portfolio managers in funding and managing this responsibility. This hasn’t worked and it is NOT going to work going forward.
We need to protect those defined benefit plans still in existence (both private and public), further help those employees mired in only a DC plan while trying to create new retirement vehicles that will provide an annuity-type product for the masses to stretch throughout their retirement (such as Double DB). These actions must be taken unless we are confident that our government can foot the bill for a greater percentage of our population to live on welfare later in life!
Ryan ALM Blog 
Hi Russ Happy New Year! Saw the article. Thought of you immediately. Most revealing part perhaps was the apparent founder of the 401K idea says he needs to work until his mid 70s! Chuck wampum1035@aol.com
Thanks, Chuck. So true, and how ironic!
Russ: You’re absolutely right, but I believe the only way you will get corporations to reassume responsibility for their employees’ retirement is thru government mandate. That, or the government has to take over the entire program. Both answers mean more government, and that bothers me greatly. Best, John
I would love to hear KCS’s thoughts on this point:
“Some initial believers in the 401(k) think those measures don’t go far enough. Ms. Ghilarducci wants to ditch the 401(k) altogether. She and Blackstone Group President Tony James are recommending a mandated, government-run savings system that would be administered by the Social Security Administration and managed by investment professionals. While both are Democrats, they believe their solution has bipartisan appeal.”
Thanks, Ryan. We would like to see the defined contribution plan become the supplemental retirement vehicle which was the original intent, and not the primary retirement vehicle that it has become. Knowing that it is unlikely that corporate America would take on the DB liability that it has shed, we would hope that they would be willing to contribute to individual retirement accounts managed and maintained at the state level. This program would eliminate the need to have the individual contribute to and manage their retirement program. The plans would have lower fees associated with them, professional management and they would reduce longevity risk. The current program isn’t working, so we need to think outside the box or we will have a social and economic crisis on our hands.