EU: Creciente Crisis en Pensiones [The Growing Retirement Crisis in the United States]

October 14, 2017

La Jornada (Ciudad de México)
14 de octubre de 2017

Como en México, Chile y otros países latinoamericanos, en Estados Unidos existe una creciente crisis en los sistemas para el retiro. Ello porque las cuentas individuales han remplazado las pensiones seguras.

Para planificar la jubilación, la analogía más recurrente alude al taburete de tres patas. El ingreso de la pensión individual derivaría de tres fuentes: el Sistema Nacional de la Seguridad Social (SNSS existente desde 1935); una pensión tradicional de beneficio definido (patrocinada por el empleador) y ahorros e inversiones individuales. Según los expertos, todas ellas deben sumar, al menos, 70 por ciento de los ingresos previos a la jubilación. El objetivo es mantener el nivel de vida que se tenía antes de la jubilación.

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English version:

The Growing Retirement Crisis in the United States

As in Mexico, Chile, and other Latin American countries, there is a growing retirement crisis in the United States as individual investment accounts have replaced secure pensions.

The analogy for U.S. retirement planning most often used is that of a three-legged stool.  One’s retirement income will come from three sources—the three legs:  the national Social Security system, in existence since 1935; a traditional employer-sponsored defined benefit pension; and individual savings and investments.

All sources of retirement income should add up to at least 70 percent of preretirement income according to experts. The goal is to be able to maintain a preretirement standard of living in retirement.

The three-legged stool was never a perfect analogy since one assumes that for a stool to be stable, the legs should be of equal length.  The amounts of retirement income from the three different sources have been very different.

For those with the most secure retirement incomes, the largest sources comes from a traditional employer-sponsored defined benefit pension plan, followed by Social Security and savings in that order.  These include most public sector workers, who make up a small minority of the labor force.

For most of the rest, including most private sector workers, Social Security makes up the largest source of retirement income, followed by incomes from an employer-sponsored plan and savings.

Let’s look at the sources of retirement income in depth.

Ninety-four percent of workers in the U.S. labor force contribute 6.2 percent of their wages to Social Security. Their employers match that with another 6.2 percent. Those contributions go into a collective fund out of which benefits are paid, including retirement income, payments for disability, and payments for children and other dependent survivors of participants who die early.  Social Security is a classic social insurance plan in which people pay premiums to protect themselves from risks.  The risks being protected against are income loss in retirement and disability, and being unable to support dependents.

Social Security works remarkably well.  Nearly one out of every four households receives some form of Social Security income.  It is the largest component of the minimalist U.S. welfare state.

According to studies, without Social Security, 40.5 percent of the over age 65 population would be poor. But because of the income it provides, the over 65 poverty rate is 8.8 percent, which is actually less than that of the general population.

Social Security enjoys tremendous public support.  Majorities of all major demographic groups, including Republicans, support it.  It is however deeply opposed by neoliberal think tanks, such as the Cato Institute and the Heritage Foundation, and by some parts of the financial services industry for economic reasons.  They don’t like trillions of dollars of the country’s retirement savings being tied up in government accounts rather than going through Wall Street from which they can profit.

There is thus a continuing battle over maintenance of the Social Security program as it is or to privatize it as was done with IMSS in Mexico, following the Chilean model imposed under the Pinochet military dictatorship.

So far, the advocates of Social Security have been able to resist all privatization attempts due to the deep public support for the program.

Employer-sponsored retirement plans cover nearly all public sector workers but only about half of private sector ones.  For those who are covered, there are two types:  defined benefit and defined contribution.

Up until 1984, most private sector worker who had retirement plans had defined benefit plans.  As with Social Security, they and their employers paid contributions into a collective fund out of which their guaranteed retirement incomes were paid.  Starting in 1981, however, employers began to increasing replace the traditional pension plans with defined contribution individual savings and investment accounts, which produce much less retirement income.

In 1981, 61.4 percent of private sector workers who had employer-sponsored retirement plans had traditional pension defined benefit ones.  Today, only 16.1 percent still have those types of plans.

The most widely known of those plans, which has become a metaphor for the approach, is the 401(k), named after a provision of the Internal Revenue Service code.

Individual savings occupy a very distant third place, except for the rich, as a source of retirement income.

Essentially what has occurred since 1981 with the retirement system of the United States is that Social Security has remained steady while employer-sponsored plans have increasingly shifted from being the form of guaranteed traditional pensions where employers bore the risks of investing to individual savings and investment schemes in which employees now bear the risks.  And these individual accounts, while very profitable for the financial services industry, produce much less retirement income than the pension plans they replaced.  Therein lies the major cause of the growing retirement crisis in the United States.

From a hemispheric perspective, U.S. workers have suffered the same transformations of their former collective and solidarity-based traditional pension plans to individual investing accounts that render much less income as have about half of Latin American workers, including those in Chile and Mexico, but in a different way.  While their national retirement system has yet to be privatized, their employer-sponsored plans have been transformed into the same types of systems as the privatized national systems of Latin America.

 

 

 

 

 

 

 


Are Congressional Districts Too Large?

June 4, 2017

Huffington Post
June 3, 2017

With elections coming up to the U.K. House of Commons and the French National Assembly, Americans might be excused for assuming that they are like our House of Representatives elections. Both are, it is true, lower houses in bicameral systems, and both, unlike in other parts of Europe, are winner-take-all district elections with no provisions for proportional representation.

But the House of Commons has 650 members and the National Assembly 577 members compared to the 435 members of the House of Representatives, which covers a much greater population size. That works out to one representative for approximately every 100,000 U.K. and French citizens compared to one per 700,000 in the U.S.—a representation gap that is over seven times as large. Put differently, UK and French citizens potentially have seven times as much national legislative representation as do U.S. citizens.

Continue reading “Are Congressional Districts Too Large?”


Trump and Le Pen, Take 2

May 6, 2017

Huffington Post
May 6, 2017

Sunday’s runoff election in France will pit centrist Emmanuel Macron against the National Front’s Marine Le Pen for the presidency. On both sides of the Atlantic, people are holding their breaths. Will the French succumb to the same forces that produced Brexit and Trump?

But is Le Pen a French version of Trump?  Or is Trump a clumsy version of Le Pen, as I put it in a Huffington Post article during the primaries? At that time, when everyone was trying to figure out what Trump represented, I advanced the interpretation that he had stumbled into the politics of the National Front and that these were at odds with traditional Republicanism.

Click here to continue reading “Trump and Le Pen, Take 2.”

 


How We Got Out of a 401(k) and into a Real Pension

April 14, 2017

Labor Notes
February 21, 2017

After being trapped in an inferior 401(k)-style retirement plan, is it possible for a union to reverse the trend and switch back to a traditional defined-benefit pension?

Connecticut state employees did just that in 2012. Our little-known story, combined with similar victories in Massachusetts and West Virginia, shows it can be done. There’s a small but growing movement to follow suit in other states.

Those of us stuck in Connecticut’s 401(k)-like plan had been contributing more than twice as much as our co-workers who had pensions—yet it was estimated we’d receive less than half the retirement income. Without adequate information, we had chosen this plan when we were hired, thinking it was better than the pension.

Continue reading “How We Got Out of a 401(k) and into a Real Pension.”


The Future of Social Security and Medicare in the Age of Trump (Audio Recording)

April 14, 2017

Lecture given by James W. Russell as part of Provost’s Lecture Series, Portland State University
April 6, 2017

Click here to listen.


How Trustworthy Are TIAA’s Predictions of Future Retirement Income?

October 18, 2016

Beacon Broadside
October 17, 2016

The ad from TIAA-CREF, the company that administers university and other retirement plans, which ran alongside my Yahoo inbox was too enticing to ignore. I clicked on the bait: “You could get 90% of your income and maintain your lifestyle in retirement.” The click brought me to another eye-catching claim: “On average, participants in TIAA-administered plans are on track to replace over 90% of their income in retirement.”

These were eye-catching claims because I had been in TIAA for over 35 years and would be replacing nowhere near 90% of my preretirement income. Nor would anyone else I knew who was in TIAA. They were also eye-catching because according to Federal Reserve data, the average family approaching retirement in 401(k)-like plans that TIAA and other financial service companies administer has only accumulated $104,000. That amount is only sufficient to generate an annual retirement income of $4,000 to $6,000, depending on how it is distributed–hardly enough to replace 90% of their preretirement income, that is, unless they were living on a sub poverty income of $7,000 or less.

How then could TIAA make such a claim? The advertisement included a footnote to its claim, literally in fine print. Being a researcher, I read the footnote.

Continue reading How Trustworthy Are TIAA’s Predictions of Future Retirement Income?


Is Trump a Clumsy Le Pen?

October 11, 2016

Huffington Post
October 10, 2016

What kind of political animal is Donald Trump? His campaign caught the Republican establishment, including the conservative think tanks, completely off guard. He may have caught himself off guard as well, never expecting to get this far, thinking of the campaign with an early exit as simply a way to burnish the Trump brand. In P.T. Barnum’s America, that is imaginable.

Trump, it is said, does not read deeply. He listens instead to television talk shows. He thinks he has a keen ear for the zeitgeist. It is also said, by his onetime ghostwriter, that he holds no ideological convictions. As a corporate huckster, he is the master of telling his target market what it wants to hear. Out of all that he cobbled together a message that resonated enough with voters to get him this far.

The message is three parts traditional Republicanism and two parts European populism. A strong nationalist appeal, opposition to immigration, and strong support for law and order fit comfortably within traditional Republicanism. But two parts are discordant:  opposition to free trade agreements and a hinted support for Social Security, the crown jewel of what exists of an American welfare state.

Continue reading “Is Trump a Clumsy Le Pen?”


Sanders Broke Debs’ 104 Year Old Record for Most Votes for a Socialist

October 1, 2016

Huffington Post
August 30, 2016

Unlike in Europe where socialist and communist parties have had sizeable voter support, historians have long noted and puzzled over their lack of electoral support in the United States, a part of the original meaning of the concept of American exceptionalism.

The highpoint of American socialist voting on a national level was the 1912 election, when Eugene V. Debs, the Socialist Party’s candidate, received 901,551 votes, 6% of the total. It was downhill from then on, that is, until 2016 when in the Democratic Party primary Bernie Sanders, a self-described socialist, received 13,168,222 votes, nearly fifteen times Debs’ total.

The comparison is of course not exact. The 2016 electorate is a lot larger than that of 1912 since the national population is a lot larger. But even in proportionate terms, Sanders broke Debs’ record. If the November percentage turnout of registered voters is the same as that of 2012, Sanders 13 million plus votes will represent 9.8% of that total, which is greater than Debs’ 6%. We can also assume that had Sanders beaten Clinton and gone on to be the party’s candidate those 13 million plus votes would have expanded greatly.

Continue reading “Sanders Broke Debs’ 104 Year Old Record for Most Votes for a Socialist”


Connecticut Governor Malloy’s Changes Weaken New Retirement Program

June 22, 2016

CT Mirror
June 20, 2016

For private employees who don’t have workplace plans, Connecticut will now have a state-sponsored plan to save for retirement. Unfortunately, what could have been a useful program was severely weakened with changes required by Governor Dannel Malloy in the face of fierce financial services industry lobbying.

This is what happened.

In 2014 labor, senior, and progressive organizations lobbied the legislature to set up a state-sponsored retirement savings program to address the growing retirement crisis, a component of which was that half of the Connecticut’s private labor force lacked employer-sponsored plans.

Over financial services industry opposition the bill narrowly passed. The first step mandated by the bill was to establish the Connecticut Retirement Security Board, on which I served. Its task was to study the issue and design a program that would then be proposed as a new legislative bill.

Continue reading “Connecticut Governor Malloy’s Changes Weaken New Retirement Program.

 


Wrong Turn from Bernie, Ending Up at Trump

May 27, 2016

Huffington Post
May 27, 2016

The possibility of Bernie voters becoming Trump voters was first thought to be because of their common critical positions on free trade agreements which have hammered working people. Bill Clinton as president was responsible for the passage of the Republican-initiated North American Free Trade Agreement. Hillary Clinton as Secretary of State promoted free trade agreements with Colombia and the Trans-Pacific Partnership. Hillary Clinton as candidate has reversed herself but is not trusted. Barack Obama after all ran against NAFTA in 2008 and then as president promoted free trade agreements.

Donald Trump as candidate seems to have learned from Obama that free trade agreements are unpopular with voters and has implied opposition. As president, though, I have no doubt that he would bend to the Republican orthodoxy and support them.

If there’s one thing the corporate elites are unified in wanting strongly, it’s more free trade agreements which they see as padding their bottom lines. And they expect presidents, whether Republican or Democrat, to get them for them.

Now it appears that there will also be Bernie voters who spurn Hillary for Trump simply because they like him more than her or dislike him less. For them voting is less an act of rational choice than a personality contest. Throw in a dose or more of misogyny and you see some of the problems confronting Clinton’s campaign staff as they transition from beating back an unexpectedly strong primary challenge to her left to confronting another unexpectedly strong challenge, this time to her right in the national election.

To continue, click Wrong Turn from Bernie, Ending Up at Trump