Huffington Post, February 9, 2016

This is a story to make you weep.

Several years ago a Portland, Oregon public schools retiree hired financial adviser Shayne Kniss to help him with retirement planning. The retiree would seem to have had no need for Mr. Kniss’s services. He already had a guaranteed life pension coming from his years of public service. But Kniss talked him into cashing out the guaranteed pension and turning the resulting $729,000 into an investment account in his Iris Capital firm.  Kniss confidently estimated 8-12% returns, which would have been higher than the guaranteed pension payments.

You can guess where this story is going.

Last September, as reported in The Oregonian, the retiree’s $3,500 payments stopped. Iris Capital was tanking. Most of its $5 million capital, collected from 50 people like the public schools retiree, had been invested in a shaky real estate flipping operation that was collapsing.

To continue reading, click Targeting Pensions and Retirement Savings

Huffington Post
January 18, 2016

 

President Obama called for strengthening Social Security in his 2016 State of the Union address.  In choosing the verb “strengthen,” he dodged taking a position within the Democratic Party’s increasingly central debate over expansion of Social Security.  Had he chosen “expand” rather than “strengthen,” he would have sided with Bernie Sanders and other progressives.  By stopping short of expand with strengthen, he placed himself either with Hillary Clinton’s hedging of the issue or in a state of ambiguity.  One can be sure that his speechwriters, vetters, and he chose the word carefully.

This was not just semantic quibbling over election-time rhetoric. Behind it lies a fight in the Democratic Party mirrored in the Hillary vs. Bernie primary race over whether to continue to compromise with Republican regressive domestic policies or to return forcefully to the New Deal legacy of which building on the success of Social Security is key.  What to do with Social Security—to trim it back or build it up more–is one of the litmus tests that divide the progressive from the corporate wings of the party.  Strengthen and expand in these contexts are code words for the politics of Social Security.

To continue reading, click Strengthen or Expand Social Security?

James W. Russell
Huffington Post
November 24, 2015

It sounds great, to be in control of your retirement plan. To make the investments you want to make when you want to make them. To be in control of a plan that has the flexibility to meet your particular retirement needs.

And Americans now have more choice than they’ve ever had with their retirement plans. It was given to them by the massive shift in the private sector from traditional pensions to 401(k)-like plans.  With traditional pension plans participants have no direct say over how plan assets are invested. With 401(k)-like plans, they have much more say.

That is an appeal proponents of Social Security privatization are also making. Privatization would mean investment freedom. Instead of assets being invested in low yield treasury bonds, as they are now, participants could choose among Wall Street’s myriad products to maximize their gains.

Having the freedom of choice sounds like a universal value that no person in her or his right mind would want to relinquish, especially when it comes to something so important for the future as a retirement plan.

But has that freedom of choice brought more retirement income or security? The answer is a resounding no. We are in a growing retirement crisis precisely because 401(k)-like plans which maximize individual choice have come nowhere close to matching the retirement incomes of the traditional pensions they replaced.

To continue reading, click Being in Control of Your Retirement Plan is a Bad Idea

 

By James W. Russell
Huffington Post, September 29, 2015

Responding to the retirement income crisis, half the states are in various stages of developing plans for employees without workplace plans beyond Social Security. Will these plans be a “game-changer” as claimed by Angela Antonelli, executive director of the Center for Retirement Initiatives at Georgetown University’s McCourt School of Public Policy? Or will they deliver more the illusion than reality of future retirement security?

I serve on the board of one of these—Connecticut. I am also a critic of the type of approach that the plans share—relying on individual invested savings to provide enough income during retirement.

The common idea of the plans is that employers would deduct 3% of employee pay to be placed in retirement investment accounts. Employers would not contribute. Essentially these would be state government-sponsored Individual Retirement Accounts.

There are a lot of questions to be settled.  Who will administer the accounts?  Will individuals direct the investments or will professional investors?  Will the states act as mere pass throughs, facilitating the collection of employee savings that will then be managed and profited from by the private financial services industry?  Or will states attempt to set up true public nonprofit retirement savings options that compete favorably with what the for-profit private sector has to offer?

The biggest question is, will the plans work?  Will they resolve the retirement crisis by providing enough future income to ensure retirement security?

To read more click here.

By James W. Russell

Huffington Post, September 10, 2015

HOW GOOD IS TIAA-CREF?

A year ago I posed that question in a blog entry for Beacon Press, the publisher of my Social Insecurity: 401(k)s and the Retirement Crisis.  I wrote that “TIAA-CREF, the retirement plan of many university professors and administrators as well as others, has escaped much of the increasing criticism of 401(k)-type plans. A number of academics with TIAA-CREF are even unaware that it is a 401(k)-type plan, thinking that the growing criticisms of 401(k)s don’t apply to their situation.

“TIAA-CREF has enjoyed relative immunity from criticism for two reasons. It is a nonprofit company that is presumed to operate exclusively in the best interests of its participants because it does not have shareholders. And precisely because it is the plan of so many highly-educated professors, it is presumed to be good because surely they must know what they are doing.

“Yet TIAA-CREF participants fare no better in retirement income than 401(k)-type plan participants with other financial services industry companies such as ING, Vanguard, and Valic. That in turn means that they fare much worse than employees with traditional defined benefit pension plans.”

The blog entry struck a chord.  It has been shared by nearly ten thousand readers so far.  You can read it here.

Continue reading “How Good is TIAA-CREF?”

By James W. Russell

Huffington Post, April 20,2015

As an author and speaker about 401(k)s and the retirement crisis, I often receive letters from readers who are relieved to find out that it wasn’t their fault that they came up short with these plans.

One reader wrote:    “I read your book some months ago, and I felt so validated.  Up until then, I didn’t really know what went wrong with my retirement plans and assumed that it was somehow my fault although I have always been a saver and had put in an extra $100/month to my 403(b) as long as I was a full-time employee. [403(b)s supplement 401(k), sharing the same stock market investing approach to retirement savings.]

“It meant a lot to me to know that my predicament was not just the result of poor planning on my part.  When I run into former colleagues who also retired, I find that they are in the same boat. One has gone back to work full-time and another, a good bit older than me, is working two jobs.”

Another 401(k) retiree wrote of having felt guilty about having to get support from her adult children.  She and her children had assumed that the blame was hers for coming up short and needing help.

The financial services industry, which profits handsomely from managing 401(k) and similar accounts, encourages victim self-blaming. What better way to deflect criticism from itself for running a rigged game?

Continue reading “Blaming the Victims of the 401(k) Crisis”

By James W. Russell

Huffington Post, April 7, 2015

With 401(k)-type plans, participants are supposed to build up savings through stock market investing during their working years that will then support them during their retirement years. Most people, as is well known by now, for multiple reasons including excessive financial service industry fees, have been unable to accumulate enough savings to support adequate retirements. But even those who are able to build up sizable retirement savings are faced with an additional problem: there are currently no good options for spending down those savings to support them in retirement.

The original idea was that the plans would mimic the defined benefit pensions they replaced.  Participants upon retirement would use their accumulated savings to purchase annuities that would support them for the rest of their lives as pensions do.

Life insurance companies and other sellers of annuities use actuarial studies to determine average ages of death. They use these averages to calculate how long they are likely to have to make payments. They calculate the sizes of the promised payments accordingly to make sure that the company on average pays out less than it receives.

An annuity company is a cross between a bank and a casino.  The house wins when annuity purchasers live shorter than average; it loses when they live longer.

Annuities, however, have turned out to not be a very good deal for retirees.  They are expensive in part because of commissions charged for their purchase, administrative fees, and other forms of costs and profit taking from their corporate issuers.

Annuities are also expensive because of the problem of adverse selection. People are more likely to purchase annuities if they think they are going to live for a long time. Not surprisingly, people who think they are going to live long lives do in fact live longer on average than people who don’t.  Because of the increased longevity of annuity purchasers, life insurance companies have to set purchase prices higher.

According to a Congressional Budget Office study, about half of the excess cost of commercial annuities comes from the profit needs of the companies that issue them with the other half coming from the adverse selection problem.

By implication, purchasers of annuities could receive significantly more retirement income if they did not have to support the profit needs of companies that sell them.  By my calculations, they could receive as much as 20 to 30% more.

Continue reading “Nonprofit Annuities: A Fix for the 401(k)”

By James W. Russell

Huffington Post, March 20, 2015

If you thought that the Affordable Care Act, aka Obamacare, completely solved the health insurance problem of the United States, then you will probably be happy with some of the types of reforms that are being crafted to address the retirement crisis.

But if you find disturbing the Congressional Budget Office’s estimate that in 2019, when the ACA is fully implemented, 22 million Americans will still be without health insurance and that there will be a deep inequality of plans for those who have it, you might be wary of what likely retirement reform will look like if it follows a parallel course.

Retirement, like healthcare, is an exceptionally profitable industry in the United States.

The sine qua non of corporate-supported retirement reform, like that of health care reform, is that it must not reduce the profits of the existing system. To get real backing from those who pay the lobbyists, it must increase those profits. The ACA thus gave health insurers more business through the subsidized exchanges.

Continue reading “Obamacare and Retirement Reform.”

Nancy J. Altman and James W. Russell

Huffington Post, March 16, 2015

The nation is facing a looming retirement income crisis.  Average retirees today are not well off.  Tomorrow’s average senior is likely to be in worse shape.

Instead of addressing this looming crisis, too many of the nation’s policymakers and elites propose to make it worse.  They tell the American people that Social Security’s earned benefits must be cut, despite their modest size.  They tell public-sector workers that their pensions are unaffordable, despite the fact that workers have already earned those benefits, indeed foregoing current compensation in the process.

Rather than proposing the expansion of Social Security and fighting for public pensions, these elites complain that Americans are not saving enough.  Americans, they say, need to be more frugal in their habits if they wish to avoid going off their own personal fiscal cliffs when they retire. Spare the lattes; pump up the retirement savings accounts instead, the elites lecture us.

Continue reading “The Great Illusion of Retirement Savings.”