The Safety Net, Part II

Private, individual tax-deferred retirement savings are a failure — a noble one, perhaps, but they were sold as a replacement for defined-benefit pensions that brought a dignified retirement to an entire generation of American workers from the 1940s all the way up to and into the 1980s.
Let me show you something. This is a graph of the Dow Jones Industrial Average from the late 19th century until 2009. Focus particularly on that big dip after October 1929:

Notice that the Dow Jones does not again reach its 1929 peak for about 25 years.

Now, imagine that you are 64 years old on Oct. 1, 1929, and had just about reached the point where your investments would provide you with a comfortable retirement. Four years later, your stocks are worth 1/10th of what they were in 1929, you are three years into retirement and those savings are dwindling away to nothing. You just have to wait another 22 years or so (when you’re 89) to get the retirement you were counting on.

That’s one reason 401(k)s are not an adequate substitute for a defined benefit pension. Leaving retirees at the mercy of Wall Street seems the height of cruelty.

There needs to be a new deal (as it were) between capital and labor: We workers will give you our best efforts and the best years of our lives, and capital will use part of the profits we provide them through our labor to provide us with an adequate retirement in return.

That seems a fair deal: both parties have rights, and both parties have responsibilities. This used to be seen as one of those “of course” things that barely merited discussion.

Putting more spending power into the hands of retirees would be a good thing for capital as well — more spending power equals more sales for American companies. And it would be good for the workers who would produce the things those retirees would buy.

It is ludicrous that in a country as wealthy as the United States, the possibility of cutting Social Security benefits comes up so regularly. We should be talking about making Social Security more generous, not less. Expanded benefits could be financed by eliminating the cap on the amount of income subject to the Social Security tax, perhaps supplemented with a Financial Transaction Tax, as has been proposed by former Labor Secretary Robert Reich and others.

I mentioned in Part I that our country’s military retirees could expect to receive 50 percent of their last active-duty paycheck if they retire after 20 years, and the amount escalates to 100 percent for retirees with 40 years of active service.

It is time we recognize that ordinary, non-military American workers also serve our country — sometimes in a very literal way, as in the case of wait staff. But what about the nurses who deliver our babies and care for us when we get sick, the people who stock the shelves in our supermarkets, the mechanics who fix our cars, the carpenters who build our homes and schools, the iron workers who construct safe bridges for us to cross? Is it too much to ask that they, too, should have the kind of retirement we give our military? Large American corporations have the means to provide this to their workers; they do not yet have a mandate to do so.

I believe providing a guaranteed income upon retirement is a responsibility of, and should be a legal requirement for, every sizeable corporation in America, and there should be government support to smaller companies so that they can do the same with their employees.

During this Holiday season, it is appropriate that we reflect on the many blessings we have in our lives, and turn our thoughts to providence. It is good that we do so — but I invite you also to give a thought today to how we might work together to thank one another for giving the best years of our lives serving one another in our economic needs.

Glory to God in the Lowest

I love the story of the loaves and fishes.

Jesus answers the doubts of his disciples with overflowing love – love not only from Him, but spread by and through each member of the crowd. There can be no limit to His generosity, and the more His followers shared it, the more comes pouring out.

The company I work for occasionally offers the opportunity to do a volunteer day feeding the homeless of San Francisco at Glide Memorial Church in the gritty Tenderloin neighborhood.
I have volunteered several times, and every time I do I’m moved beyond words.

There is something about giving food to the hungry that strips away whatever it is in me that resists seeing love in the world. There they stand, some neatly dressed, some in little more than street-grimed rags, and they silently ask me to feed them, and in their vulnerability and their wounds I see the Face  of Christ, and Him crucified.

I always think “Lord, I am not worthy that You should enter under my Roof, but only say the word and my soul shall be healed.”

I see an old man sitting at one of the tables,  missing his front teeth, and I see another old man offer him his soft dinner roll with a look of humble and saintly kindness, and  then I realize that those two old men are Christ, showing me the Way to Heaven.

I see a man softly ranting, at once incoherent and deeply convinced, and see the other diners at his table listen attentively, as if he were a professor discussing the classics in a graduate seminar, and there I see the most simple and beautiful mercy being made plain.

I see men and women pouring each other cups of water, and responding with simple gratitude, and it is the wedding at Cana, writ small.

The Kingdom is at hand.

Glory to God in the Lowest.

The Safety Net, Part I

THOSE WHO MAKE A CAREER OF SERVING OUR NATION in the armed forces know that they are earning a nice retirement as they do so. Men and women who serve 20 years can retire with half the rate of pay they were earning at the point they retired, for life — and if active-duty people get a raise, so do retirees. Those who serve 30 years receive 75 percent of their rate at retirement, and the few who actually put in 40 years of service receive their full pay at retirement for the rest of their lives.

These facts raise few eyebrows among taxpayers. People who wear the uniforms of our armed forces put their lives, bodies and sanity at risk for our nation, and providing a comfortable retirement for them and their families seems only fair.

In the years before the advent of 401(k) plans and other tax-deferred retirement savings plans, the majority of American workers had what were called “defined benefit” plans, so that retiring after years of service to one company would result in a guaranteed monthly income that was not subject to the ups and downs of Wall Street. This was part of an implicit deal between workers and management: You gave the company your prime years, and in return the company provided for your retirement.

401(k) plans were sold as a way to “give the worker the power to manage his own retirement” and thus get out from under the grip of paternalistic corporations. What it really was was a way for the management class to relieve itself of its responsibility for its workers, and as a bonus earn Wall Street hefty fees for managing all those new investments.

In an editorial on Nov. 17, the Washington Post editorial board posited the following:

(T)he poverty rate among the elderly is 9.1 percent, lower than the national rate of 15 percent — and much lower than the 21.8 percent rate among children.

“This suggests that Social Security is doing a good job of fighting poverty as is and that those gains could be preserved in any attempt to trim the program. … (I)f anyone has a claim on a greater share of federal resources, it would seem to be the young — and especially the poor young. Unchecked entitlement spending for the elderly crowds out spending on programs that might help them, as well as defense, research, infrastructure and law enforcement.

My new favorite Democrat, Massachusetts Sen. Elizabeth Warren, did not mince words on the floor of the Senate in her response to the editorial:

No retirement crisis? Tell that to the millions of Americans who are facing retirement without a pension. Tell that to the millions of Americans who have nothing to fall back on except Social Security. There is a $6.6 trillion gap between what Americans under 65 are currently saving and what they will need to maintain their current standard of living when they hit retirement. $6.6 trillion — and that assumes Social Security benefits aren’t cut. Make no mistake: This is a crisis.

The call to cut Social Security has an uglier side to it, too. The Washington Post framed the choice as more children in poverty versus more seniors in poverty. The suggestion that we have become a country where those living in poverty fight each other for a handful of crumbs tossed off the tables of the very wealthy is fundamentally wrong. This is about our values, and our values tell us that we don’t build a future by first deciding who among our most vulnerable will be left to starve.

Preach it, Elizabeth.

I think it is time to acknowledge the obvious: for the vast majority of workers, 401(k)s have been a failure. According to Forbes magazine:

Our national demographics, coupled with indisputable, glaringly insufficient retirement savings and human physiology, suggest that a catastrophic outcome for at least a significant percentage of our elderly population is inevitable. With the average 401(k) balance for 65 year olds estimated at $25,000 by independent experts — $100,000 if you believe the retirement planning industry — the decades many elders will spend in forced or elected ‘retirement’ will be grim.

It is often pointed out that Social Security was not designed to provide anything like a generous retirement, but more to prevent the abject poverty that used to be relatively ordinary among seniors.

Less often mentioned is that Social Security’s designers assumed the defined-benefit pensions I mentioned previously would do the heavy lifting of providing a comfortable retirement — and for decades they did. But since that is no longer the case, and since 401(k)s and other “defined contribution” plans have utterly failed to replace them, I think it is time to look at some alternative solutions.

I mentioned the military retirement system at the beginning of this column, where years of service determines how much you get; more service means more money. That might serve as a template for any adequate national pension system.