1989 – A Bad Year For Pension America

According to a chart shared on LinkedIn.com by Lori Lucas, President and CEO, Employee Benefit Research Institute, 1989 was the year when Pension America truly began to be impacted by the looming pension crisis. Why 1989? This was considered the cross-over year in which more private sector U.S. workers were only in defined contribution (DC) plans versus those workers in only defined benefit (DB) plans. Unfortunately, 1% of private sector workers are in employment situations where they only have access to a DB plan, while a full 41% only have access to a DC plan. More than 40% of American private sector workers don’t have access to any retirement vehicle – that is the true crisis!

Given this situation, it shouldn’t be surprising that the National Institute for Retirement Security’s Retirement Insecurity 2021 survey found Americans more anxious about their retirement prospects. More than half of those polled doubt their ability to have an adequate retirement when they stop working. Given the uncertainty that has been exacerbated by the impact of Covis-19 on the average American, it shouldn’t be surprising that roughly 1/3 of American workers have adjusted their retirement date, with more than 2/3rds of those extending it. In addition to personal fears related to one’s retirement, 68% of Americans believe that the U.S. is facing a retirement crisis. They cite the lack of pensions (51%) as the primary reason.

DB pensions enjoy quite favorable views across political parties (a rare feat today) with 77% of Republicans and 81% of Democrats believing that DB plans are superior to DC plans. I believe that they are right! Not surprising, the guaranteed monthly payment is the most attractive feature of the DB plan. As I’ve often stated, asking an untrained worker to fund (in many cases with little disposable income), manage, and then disburse a retirement benefit is a cruel exercise! Why do we think that 99% of those individuals will be up to the task? In addition to a lack of a monthly benefit, survey respondents also cited several other reasons for why they believe that a retirement crisis is looming, including, higher healthcare costs, long-term care costs, decades of low-wage growth, and higher debt levels (thanks student loans) for those approaching “retirement”.

According to NIRS, “The U.S. is facing a retirement savings crisis that likely is worsening thanks to yet another economic crisis. Except for the wealthier Americans, the typical working American is not on track to maintain their standard of living in retirement”. A very sobering thought, indeed. Lastly, please don’t confuse average account balances as a measure of success for DC plans, as the lack of participation for a big swath of the American work force and MEDIAN account balances suggest a very different situation/outcome.

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