401(k) Plans Were Never Designed to Help Workers

Commandante Atrios (aka ‘Duncan Black’–like that’s a real name or something…) writes in USA Today about the looming retirement crisis (boldface mine):

Over the past few decades, employees fortunate enough to have employer-based retirement benefits have been shifted from defined benefit plans to defined contribution plans. We are now seeing the results of that grand experiment, and they are frightening. Recent and near-retirees, the first major cohort of the 401(k) era, do not have nearly enough in retirement savings to even come close to maintaining their current lifestyles.

Frankly, that’s an optimistic way of putting it. Let me be alarmist for a moment, because the fact is the numbers are truly alarming. We should be worried that large numbers of people nearing retirement will be unable to keep their homes or continue to pay their rent.

According to the Center for Retirement Research at Boston College, the median household retirement account balance in 2010 for workers between the ages of 55-64 was just $120,000. For people expecting to retire at around age 65, and to live for another 15 years or more, this will provide for only a trivial supplement to Social Security benefits.

And that’s for people who actually have a retirement account of some kind. A third of households do not. For these people, their sole retirement income, aside from potential aid from friends and family, comes from Social Security, for which the current average monthly benefit is $1,230.

It also sucks for the young’uns:

…how, exactly, do we expect younger workers, who might benefit from these improvements, to start saving significantly for their retirement? Soaring tuition and fees at universities, combined with the associated soaring student loan borrowing, have led many people to start their working lives already deeply in debt. According to the Project on Student Debt, the members of the class of 2011 with student loans had an average of $26,000 outstanding.

These are mostly 22-year-olds who have never worked full time and who are finding it difficult to find good jobs in the age of the Great Recession. They’re beginning their working lives in the hole. Understandably, and necessarily, retiring that debt is going to be a priority over retirement savings. One might imagine that saving for a mortgage down payment and even spending a few bucks to enjoy life might be priorities too. At the very minimum, beginning their personal retirement savings will be delayed by years.

Atrios is absolutely right, but there’s one thing he glosses over: 401(k) plans were never designed to help middle-class people to save for retirement. They were designed to reward wealthy people for doing something they would have done anyway–investing savings. They also reduced employee costs for employers and enabled companies to use revenues to buy company shares, thereby driving up stock prices (though this often wasn’t good for employees–just ask an Enron employee whose retirement plan was full of Enron shares). It also helped drive up stock market prices in general, which was a real concern in the mid- to late 1970s.

If we had wanted to guarantee good retirement plans for most workers, we could have simply allowed workers and employers to increase their contributions to the Social Security Fund and then increase their guaranteed retirement payouts accordingly (remember, one-third of Social Security payments do not go to retirees; this ‘bonus’ deal would have been very good for most workers). But we didn’t do that, because retirement security was never the goal, neo-liberal propaganda notwithstanding.

In other words, the outcome shouldn’t be surprising. It’s a feature, not a bug.

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