Calling it quits

"The day is coming when millions of Americans will not have enough money when they retire," warns The New York Times' Louis Uchitelle in a Week in Review article titled, "Do You Plan to Retire? Think Again." Friday's paper followed up with the front-page feature, "Pension Change Puts the Burden on Workers."

The villains producing the crisis are 401(k) plans and employers, who've replaced defined-benefit pensions with often-voluntary defined-contribution plans. The victims are employees, who are left to shoulder the "burden" of our own golden years. The solution, to the Times, is to substitute collective coercion for individual responsibility and push people into semi-private knock-offs of Social Security's annuity. "[E]xperts favor an alternate approach in which employees would pool their retirement savings," writes Uchitelle. "From these pooled savings, pensions would be paid in fixed amounts promised in advance."

The narrative that places traditional pensions at the center of America's retirement system is bunk. Such plans have a glorious history dating back to 1875; they became particularly popular during World War II as a way for companies to dodge wage controls. Yet even at their peak, fewer than half of Americans could look forward to such a pension. And make no mistake: Workers shoulder the burden of paying for traditional pensions, in the form of reduced compensation and job lock. They are becoming a thing of the past in part because government regulations make them prohibitively costly for all but the largest employers to manage.

401(k) plans became popular because they serve both employer and employee needs. Employers get predictable costs. Employees get a tax-deferred, portable pension, one that they own, and, unlike an annuity, can pass on to heirs. 401(k)s are a part of diverse ecology of tax-deferred financial tools, including 11 flavors of Individual Retirement Accounts and so-called 529 plans for college costs, that allow Americans to provide for their own financial security. James P. Smith, an economist with the RAND Corporation, estimates that 80 percent of Americans will be able to meet their retirement needs with currently available means-a combination of the mandatory Social Security system and voluntary accounts.

What really rubs the Times and others are the unequal outcomes produced by this world of free and diverse choices. "There are people with low incomes who save more than people with high incomes," RAND's Smith tells the Times. "The fact is that some people are prudent and others are not."