The documentary presents a stark picture of the retirement crisis in America, with half of working employees lacking access to a company retirement plan, and of those that do, only a third contributing, and of that group only 11% saving enough. The program blames the shift from defined benefit pensions to defined contribution plans like 401(k)s, though workers always faced retirement risks. Employers need to better educate participants and ensure retirement plans fit needs to help address the crisis.

1. Better Retirement Odds
Submitted by David Gratke on Wed, 06/05/2013 - 12:00pm
The idea of retiring at age 65 with a gold watch is a quaint notion for many
Americans. Amid declining wages and low interest income, most people
have a tough time setting aside money for retirement. If anyone can help,
it’s employers who must set up good workplace savings plans.
This topic needs the openness of a robust discussion from all
stakeholders, airing all sides of the argument. We seldom get that.
In April, PBS Frontline ran a TV documentary called “The Retirement
Gamble,” which revealed multiple problems that Americans face in saving
for retirement. The issues that the documentary brought up and failed to
mention caused quite a buzz in the investment management and
retirement planning blogosphere. I think that the program raised some
very important points, although it didn’t go far enough in its analysis.
The documentary presents a stark picture of the retirement crisis in
America. Half of all working employees have no access to a company
retirement plan. Of those that do, only one third are using it. Of that third,
only 11% are saving enough to live well in retirement.
In June 2012, the Federal Reserve released a study showing that
Americans’ wealth plummeted by 39% from 2007 to 2010. The net worth
of the average American household fell from $126,400 in 2007 to $77,300
in 2010. The recession and the fall in home values essentially sent us
back to 1992.
The TV program blamed, among other things, the move from defined
benefit pension plans (where you get a monthly check, based on final
salary and years of service) to defined contribution plans like a 401(k),
whose payouts depend on how the markets do.
The program says that there were these halcyon days when more people
had pensions. Before the pension-protecting Employee Retirement

2. Income Security Act (ERISA) was signed in 1974, 42% of employees
had access to pensions. Today, only 13% of private sector workers have
a defined benefit plan, and 31% have a 401(k)-type plan.
But it isn’t so simple as a switch from staid pensions to risky 401(k)s. In
fact, workers always “gambled” with their retirements.
As Nevin Adams, the Employee Benefits Research Institute’s director of
education points out in his reaction to the PBS special, just having
access to a pension doesn’t guarantee a successful retirement any more
than a 401(k) plan does.
“There’s a huge difference between working at an employer that offers a
pension plan and actually collecting a pension based on that
employment,” Adams writes. “Even among the minority of private-sector
workers who ‘have’ a pension, many would likely receive a negligible
amount because they didn’t stay on the job long enough to earn a
meaningful benefit.”
The program criticized the high fees of some investment products and
the financial industry’s opaque conflicts of interest.
I think that the PBS piece should have addressed two other major
issues, as well. One, the lack of real long-term wage growth in America
over the decades and how that affects Americans ability to save for
retirement. In April, the average worker made $676.02 weekly, up just
1.72% from a year ago, just a hair over the rate of inflation for the same
12 months. Indeed, inflation-adjusted wages for men actually fell since
1970. As women increasingly sought more education, their income
escalated through the 1990s, but fell 6% since 2000. With less real
income, there is naturally less left over to save for the future.
Also, the program lacked a discussion on how the Federal Reserve’s
loose money policy hurts savers. We used to get a small but significant
reward for keeping money in savings accounts, certificates of deposit
and government bonds. That’s gone as interest rates are close to zero.
Without safe investments like that, many investors flock into riskier asset
classes they know little about, such as equities.
What can an employer do about this? If you own a company and offer a
retirement plan benefit to your employees, you contribute greatly to their
future financial security. You also assume serious and important
responsibility.
A key part of the retirement crisis is the inaction of the plan sponsor. As
retirement plan attorney Ary Rosenbaumwrites, employers need to do a
better job of educating participants and reviewing the company’s plan to
make sure it fits everyone’s needs.
“The fact is that too many 401(k) plan sponsors neglect their fiduciary
duty,” he writes. “That is why you have expensive plans with mediocre
investment options and plan participants ill-prepared to pick their own
investments.”

3. While there is no panacea for the retirement crisis in America, plan
sponsors can help their participants retire successfully. Individual savers
could also benefit greatly by hiring a financial advisor to help make the
right investment decisions.
Follow AdviceIQ on Twitter at @adviceiq.
David Gratke is chief executive officer of Gratke Wealth LLC in Beaverton,
Ore.
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Topic:
Salaries and Benefits
401K
Retirement Planning