A certain uncertainty
Navigating a world in which the risk of an uncertain future rests with workers
By Barry Gordon 01/05/2012
I’ve just returned from a week in New Orleans where, in addition to enjoying some great music and even greater food (definitely not a city for vegans), I attended a conference about union employee benefits as part of my role as a trustee of the Screen Actors Guild’s Pension and Health Plans. To say the conference was eye-opening would be an understatement. There were 5,000 labor and management trustees from all over the country, and the message was clear: The defined benefit plan, which provides a fixed monthly income to a retiree until the end of his or her life, is rapidly becoming extinct.
Today, we’re given an opportunity to invest some money by putting it into a 401(k) account. If we’re lucky, we receive a matching contribution from our employers. I’m convinced that one reason news channels — not just business channels like CNBC — relentlessly display the stock ticker on the screen is that stock ownership affects all of us now because of these accounts. We’re told, of course, that the short-term gyrations of the market are meaningless because, in the long run, everything will work out and we’ll all get a decent return on our investment. We glorify the new “ownership” society. We proudly trumpet the virtues of personal responsibility.
But let’s say, just for the sake of argument, that this system existed back in, oh, 1968 (it didn’t, but just take the ride with me for a moment). Barry Boomer is 25 years old. Instead of a pension, he receives a 401(k) account and dutifully contributes to it year in and year out. He’s developed quite a nest egg and is pretty proud of his accomplishment. He intends to buy an annuity from an insurance company to guarantee a decent monthly income when he retires. They’re expensive, but worth the stability it brings. Barry knows how to plan ahead.
Barry turns 65 in 2008, at the height of the financial meltdown. His 401(k) has lost almost half its value (a fairly common experience during that period, according to some studies). His careful planning has pretty much been for naught. Now he needs to decide whether to retire now or wait a few years, or whether he can live on half the income he expected to have. The decent retirement he was looking forward to, a reward for more than 40 years of hard work, has now turned into a calculation of how to muddle along until he dies. This is no fantasy — millions of retirees are facing this bleak choice every day (Disclaimer: This Barry is not me. The Screen Actors Guild still provides a defined benefit pension upon retirement).
How did we get here? Author Jacob Hacker wrote an excellent book about this in 2008, called “The Great Risk Shift.” In it, he asserts that this change is not an accident of history, but an intentional strategy to shift the risk of an uncertain future onto the worker. As such, it is a deliberate tearing up of the social contract between employer and employee that existed from the late 1940s up to the Reagan Era.
We hear a lot about uncertainty from the Republican field of 2012 presidential candidates. In fact, they blame much of our current economic dilemma on the fact that businesses won’t invest and grow as long as this uncertainty continues. In their view, businesses want certainty in regulation (read “very little”), certainty in taxation (read “low”) and certainty in their responsibilities to their retirees (read “none”).
But many of the Occupy Wall Streeters, and even some of the Tea Partiers, recognize a different kind of uncertainty that hits each and every one of us. With even the threat of outsourcing, job security has become a thing of the past. Takeover artists like Mitt Romney have told us for years that companies have to “trim the fat,” a euphemism for firing people and often sending their jobs overseas. One catastrophic health episode can destroy one’s livelihood and that of his or her family forever. Bankruptcy is now easier to declare for multinational corporations than it is for people who have lost their incomes or savings through no fault of their own. Uncertainty has become a way of life, especially for most retirees.
Of course, there have been abuses. We read about prison guards who can retire at 50 with a pension worth almost 100 percent of their salary, and our blood boils. We read about public safety unions that have effectively used political pressure to win exorbitant benefit and wage demands, and we shake our heads in disbelief. How did our first responders, the people hired to protect the rest of us, become shakedown artists?
Republicans will say that city and state officials “overpromised” benefits they couldn’t afford. But that’s only looking at one side of the coin. Many governments could afford those promises when they made them, before they made risky investments in subprime loans or raided the pension coffers to pay for other things. But the public’s hatred of anything that looks like a tax (except on the wealthy) has left most of them without recourse. Also, those promises were part of a bargain. There is always a trade-off in these situations, usually for a smaller wage package. Many states and municipalities were willing to trade higher future benefits for smaller immediate ones.
And there’s always the media, ready to take any outlandish exception and make it seem like the rule. The truth is that the average defined benefit pension today is around $1,900 a month and probably 80 percent of those plans are well funded. Another truth, for those of us interested in efficiency and cost ssaving, is that it cost almost twice as much for an employer to establish a defined contribution plan than a defined benefit plan. But those facts don’t make the news much.
Yep, I learned a lot in New Orleans, in between the great music and even greater food. Beignets, anyone?
Barry Gordon is the co-host of “City Beat” and teaches political science at Cal State LA.