According to the Department of Labor, the median wage in the US in 2002 was $38,655 (adjusted for inflation). In 2019, the median wage had “rocketed” all the way to $39,101! Amazingly, we have ONLY seen inflation adjusted wages grow by $546 since 2002. Oh, my! During that nearly two decades we’ve witnessed further deterioration in the use of defined benefit plans (DB) and the greater emphasis on defined contribution plans (DC) that require individuals to fund, manage, and then disburse a retirement benefit. Do you really think that this is feasible given the modest growth in wages? Furthermore, we have seen housing costs (both purchase and rent), educational costs (look at student loan debt), healthcare, and health insurance premiums explode with each outpacing the CPI. This experiment will end in catastrophe.
Regrettably, many Americans don’t have access to an employer sponsored retirement benefit of any kind. We know from studies that most Americans don’t save outside of their employer-sponsored plan. For those that do have an employer capable of providing their employees with a plan, only about 70% of the employees take advantage of the savings vehicle. Furthermore, most aren’t coming close to maximizing their full deduction, and who can blame them given the meager wages. It costs a certain amount to provide for oneself and many Americans aren’t earning enough to meet that threshold. Why do we think that saving for a future retirement is even possible – it isn’t!
Why have we allowed this development to occur? Why have we determined that it is okay for DB plans to be frozen and terminated in favor of DC offerings that don’t come close to providing individuals with the necessary assets to enjoy a retirement, let alone one that is dignified. This social experiment will be a failure! I don’t think that we really need more time to see that insignificant DC balances will be adequate to keep Americans from falling onto the social safety net of our federal government. It is time to embrace the use of state-sponsored defined benefit plans. If corporate America doesn’t want to own the pension liability – fine! But they should at least be mandated to make a contribution on behalf of an employee into a state run defined benefit plan that is professionally managed, low cost, and one that provides a monthly annuity upon retirement.