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Of straw men and pension plans

by Don Kuehn

Like you, I watched the recent events in Madison, Wis., with a combination of disgust and amazement. I was inspired by the outpouring of support for public employees and their unions, encouraged by the state Senate Democrats in exile, and I was offended by the tactics used and misinformation spread by the governor and his henchmen.

Gov. Scott Walker’s claims that the state’s economy was so sick that only sacrifices by state workers—not revenue increases, corporate taxes or even temporary measures to get past the immediate crisis—were the only medicine that would cure it lacked credibility.

We should expect more from a governor than setting up “straw men” and fomenting culture wars. Trying to cast public workers as greedy individuals with wages and benefits greater than ordinary Wisconsinites was a sickening manipulation of facts. When the governor claimed collective bargaining was the source of the “problem,” he exposed his real anti-union agenda.

In virtually every state, the public employee pension systems were in place long before there was collective bargaining. Even today, states that don’t have bargaining laws do have retirement programs for public employees and those plans are, for the most part, underfunded, too.

During the recent recession, and the resulting slow recovery, state retirement plans and individual 401(k) plans both have taken a big hit. It was easy for Gov. Walker to drive a wedge between nonunionized private sector workers and state and local unionized employees whose pension plans are “guaranteed” by the state. He set up a classic “have vs. have not” scenario, and he kept telling the “have nots” that they were paying for the “haves’ to keep their rich retirement plans.

Walker’s political calculus was that when the dust settled, his side would solidify the votes of the “have nots” into a political force lined up against public sector (mostly Democratic) workers. Fifty years of collective bargaining heritage was cast aside in a political strategy funded by the billionaire Koch brothers and other outside forces whose hatred of unions is evident and well known.

I don’t even want to get into the linchpin issue of collective bargaining—the ability of employee representatives to engage their employers, to hold their decisions up to scrutiny, to bargain over the impact of management decisions, to protect the rights and welfare of workers, and to negotiate over future wages and benefits. It’s a sad time for a guy like me, who spent the better part of 28 years fighting to get (and use) collective bargaining to better the lives of teachers and public employees.

The class conflict nurtured by Gov. Walker in Wisconsin is, at least in part, the result of a bigger picture that he has exploited quite expertly. Over the past two decades, corporate America has shifted from defined-benefit pension plans (like the ones most public employees have through their state retirement systems) to 401(k) or similar types of plans—also called defined-contribution plans—that shift the onus of saving and investing from the boss to the worker.

While employees’ contributions were deducted from paychecks automatically throughout the recession, the employers’ share was (or should have been) paid directly into the state plans. In some cases, employers deferred their payments so they could use the extra revenue to keep workers employed. The theory being that when the recession ended and the markets recovered, state pension managers would be able to recoup the losses they sustained during the crash. Their pension plans would regain their actuarial equilibrium.

The markets have staged a strong recovery over the past two years, retracing the losses suffered during the recession (at least until the turmoil in the Middle East and the quake/tsunami/nuclear reactor crisis in Japan). However, a year or two lost while you are trying to accumulate enough money to retire or immediately after retirement can set you back a decade or more.

While I think 401(k) plans—and 403(b) plans for public sector workers—have the potential to provide a good retirement nest egg for a few very active and very astute investors, I have come to believe they will usher in a period when most investors will underperform the markets and won’t be able to retire in comfort. Social Security along with modest saving and investment will not create the cushion needed to make it through 30 or more years of retirement. And I’m afraid very few people are willing to live far enough below their means to turbocharge their investing and make up the difference.

The AARP Bulletin recently reported that a 2010 study by the Center for Retirement Research at Boston College showed a $6.6 trillion shortfall between what Americans need to retire and what they will actually have in their accounts.

The Employee Benefit Research Institute (EBRI) released its 2011 Retirement Confidence Survey in March. It showed that two-thirds of U.S. workers said they were saving for retirement, but nearly one-third of them had saved less than $1,000! About half said they had saved less than $25,000. They’re kidding themselves.

In the 21-year history of the EBRI survey, there had never been a lower level of workers’ confidence—reflected by the 27 percent who said they were “not at all confident” they could afford a comfortable retirement.

  • Forty percent said they had never even tried to figure out how much they would need to save to retire.
  • Seven out of 10 said they planned to work in their retirement years (three times the current number).
  • Thirty-six percent said they expected to retire later than age 65 (compared with 11 percent in the 1991 survey).
  • Instead of making fundamental adjustments to their spending and savings patterns in response to their declining confidence, workers “move the goal posts”—changing their expectations of how they will make the transition from work to retirement.

This should be a wake-up call for you to look toward the future and do what you can do to ensure your own prosperity. As lukewarm as I am about 401(k) and 403(b) plans, if you have access to one, you must fund it to the best of your ability. Your challenge then will be to become an astute and aggressive investor. You have to understand and capitalize on what the markets can do for you, and know how you can grow your investments to a point that will allow you to retire on your own terms and enjoy the life you have earned. It’s your money.

Don Kuehn is a retired AFT senior national representative. For specific advice relative to your personal situation, consult competent legal, tax or financial counsel. Comments and questions can be sent to