Editor’s Letter | PLANADVISER July/August 2017

Setting the Record Straight

The idea that people worked for one company their whole lives and then got a “fat” paycheck at the end is not proven by evidence.

By Alison Cooke Mintzer | July/August 2017

PA_EditorLetter_AliA few weeks ago, while I was looking for news about retirement plans, I happened upon a CNN Money article titled, “4 Money Problems That Didn’t Exist 50 Years Ago (and How to Fix Them).”

I clicked on the headline to look for the retirement connection and I was grossly disappointed by what I saw, because, what was one of those money problems? Saving for retirement.

The article, written by Wendy Connick for The Motley Fool, says, “Once upon a time, everyone worked for the same company their whole working lives, and at the end of their career, they retired with a fat pension. Today, only 32% of retirees have any pension at all, and that number is trending steeply downward as employer pensions continue to vanish. That means the responsibility for financing a worker’s retirement falls almost entirely on the worker. And given how bad Americans are at saving money, a lot of retirees run into serious income shortages as a result.”

So why does something like this frustrate me? Let’s look at the working-for-one-company-their-whole-lives part of the article. According to the Bureau of Labor Statistics, in 1963, the median job tenure for workers ages 14 and older—both men and women—was 4.6 years, and, if you looked at just men, it was shy of six. To dig into this more, and control for the younger workers, median job tenure for men ages 45 through 54 was between 11 and 12 years. So yes, half of workers had more time than that at an employer and would potentially accumulate sizeable pension income. However, it’s far from the “everyone” cited in the article. A career lifetime with a single employer is not happening for most employees now, nor was it happening 50 years ago.

Considering that job tenure fact, it’s pretty easy to examine what really happened to those getting pension money, because “fat” pension accumulation is dependent upon company tenure. Let’s also remember that 50 years ago was before the passage of the Employee Retirement Income Security Act (ERISA)—legislation that grew out of companies being unable to meet pension obligations, even to employees who had earned “fat” ones.

Personal finance writing continues to harp on the decline of pensions as being why people are unprepared for retirement. The only thing I found somewhat redeeming in this piece was that at least the writer alludes to the poor savings rate of Americans. However, what she doesn’t say is how poor that savings rate is and how it differs from saving 50 years ago. For reference, according to the U.S. Bureau of Economic Analysis, in July 1967, the personal saving rate was 12.5%. When you compare that with May of this year, when the rate was 5.5%, it seems that many of these articles are missing the opportunity to tell Americans that people weren’t just relying on their employer to provide retirement security but were taking it upon themselves to save for their future.

In fact, pensions were traditionally discussed as part of the “three-legged stool” of retirement, which said that retirement income would come from three sources: a workplace pension plan, Social Security, and personal/private savings. Yes, as Americans we currently face challenges in all three of those areas: Workplace defined benefit (DB) plans continue to decline; without major changes, Social Security will run out of money in a couple of decades; and Americans have a woefully inadequate savings rate to fund time without income. Considering many employers make some sort of employer contribution to their defined contribution (DC) plans, maybe we should start replacing pensions with employer contributions in that stool concept.

The author does provide a solution—she says, people should save early and “work a little harder to squeeze more cash out of your budget and be disciplined about paying yourself first.” That is helpful, as is her following sentence: “Luckily, workers today have access to powerful tax-advantaged retirement accounts, [such as] 401(k)s and IRAs [individual retirement accounts] that can help maximize whatever savings they manage to accrue.” But it doesn’t mention that employers often contribute to these plans, even if not to traditional pensions, nor does it explain that Americans saved money 50 years ago that likely went toward their retirement income.

Overall, narratives such as those in the article that seem to suggest Americans never had to take part in their retirement income picture are flat wrong and ignore the actual data. It’s not wrong to say that pensions have declined. However, the idea that people worked for one company their whole lives and then got a “fat” pension at the end is not proven by evidence. Articles such as this one do all Americans a massive disservice. The issue is that the personal finance stories leading with the idea that, historically, Americans didn’t have to take ownership or responsibility for their retirement only breeds resentment when people feel like they are being treated unfairly now or are getting shorted.