Posted on 23 March 2011
By Mark Miller
Politicians and pundits have been caught off-balance in recent weeks by the strong public support for state government workers fighting to protect their pensions in Wisconsin and elsewhere. They seem to have expected that taxpayers would back efforts to cut spending by squeezing pension benefits.
But something else is occurring. Americans not involved in the state government wars are worried deeply about their own retirement security — and they have a growing sense that the traditional pensions enjoyed by most public sector workers just might be worth protecting. Call it a healthy case of pension envy — but a healthy case.
A new national poll shows Americans are in a state of near panic about retirement security. The research was commissioned by the National Institute on Retirement Security (NIRS), and covered a representative sample of all age groups. The poll shows that expectations for retirements have been diminished to the point where most Americans now equate retirement security with mere survival.
Quoting from the study:
“Generally, Americans consider a secure retirement simply surviving or living comfortably (34 percent), paying their bills (17 percent), maintaining their pre-retirement lifestyle (11 percent), and paying healthcare and health insurance costs (8 percent). Only 11 percent expect retirement to include leisure, travel, restaurants, and/or hobbies.”
Meanwhile, 84 percent said workers with traditional pensions are more likely to have a secure retirement, and 77 percent believe the disappearance of pensions has made it harder to achieve the “American Dream.”
Nearly 80 percent said leaders in Washington don’t understand how hard it is to prepare for retirement in this economy, and 80 percent say Washington leaders need to give a higher priority to improving retirement security.
The NIRS findings are confirmed by another new study suggesting Americans are adjusting to a “new normal” where retirement security is concerned — and the new normal isn’t good.
The annual Retirement Confidence Survey from the Employee Benefit Research Institute finds that Americans’ confidence in their ability to afford a comfortable retirement has hit a new low. The percentage of workers who say they are “not at all confident” about having enough money for a comfortable retirement grew from 22 percent in 2010 to 27 percent, the highest level measured in the study’s 21-year-history.
Planning experts like to talk about the three-legged stool that supports retirement security. The legs of the stool are Social Security, individual retirement savings and a pension. But all three legs look wobbly.
The value of Social Security benefits already has been reduced by the higher retirement age enacted in 1983 reforms, and by rising Medicare Part B premiums, which are deducted from Social Security benefits. Social Security’s value could fall further if the current misbegotten reform efforts push the retirement age higher still.
Meanwhile, individual retirement savings have fallen far short of goals, and defined benefit pensions have evaporated in the private sector as more employers shift to defined contribution programs, mainly 401(k) plans.
So, the public understands what’s at stake in the battles being fought by public sector unions in states like Wisconsin and Ohio, and doesn’t seem inclined to endorse a state-by-state race to the bottom. And what’s at stake is the value of guaranteed income in retirement.
I don’t mean to minimize the serious problems facing government-sponsored pension plans in some states. Some of these plans have been grossly underfunded over the last several decades as a result of political and governmental malpractice. It seems inevitable that we will see some changes in some plan designs, such as higher retirement ages for workers outside of public safety jobs, and shifts to 401(k)-style defined contribution systems.
But at the same time, some of the headlines about unfunded liabilities are over-stated, and confuse cyclical economics with the way pension plans actually work. A significant portion of unfunded liabilities stem from the 2008 market crash and will evaporate over time.
“The idea that there is this huge crisis and states will start defaulting on debt payments or won’t make pension payments is over-blown,” argues Elizabeth McNichol, a senior fellow at the Center on Budget Planning and Priorities (CBPP) who specializes in state fiscal issues.
“People are taking current fiscal problems caused by the recession’s impact on state revenues and adding in an exaggerated view of the debt and unpaid pension obligations. That makes the problems seem much larger than they are.”