Public Employee Press

The World of Work

Economic meltdown
Vaporizing 401(k)s, disappearing pensions

By GREGORY N. HEIRES

The economic crisis has wiped out $2 trillion in retirement savings in pension plans and 401(k) accounts so far this year.

“It’s clear that Americans’ retirement security may be one of the greatest casualties of this financial crisis,” said U.S. Rep. George Miller (D-Calif.), chair of the House Committee on Education and Labor at a hearing in October.

Public employees like DC 37 members can breathe a sigh of relief, though, because the New York State Constitution says the pensions of current employees can’t be “diminished or impaired.” Any reduction would require a constitutional amendment.

But like millions of workers without traditional pensions, many DC 37 members also have a 401(k) or similar savings plans, which they are counting on to supplement their pension and Social Security.

As a result of the financial crisis, 401(k) account holders were walloped with losses of around 20 percent as the stock market imploded this year.

The retirement crisis was the subject of a panel held Sept. 26 by the City University of New York’s Murphy Institute.

Retirees face a declining standard of living because of the country’s shift from traditional pensions to 401(k) plans in recent decades, said panelist Teresa Ghilarducci, a professor of economic policy analysis at the New School for Social Research and author of “When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them.”

401(k): A guaranteed risk
Falling home values, growing health care expenses and shrinking savings resulting from stagnating incomes are also putting the squeeze on retired workers, leaving them to rely more and more on Social Security, she said. The financial pinch is forcing many retirees to return to the workforce.

Corporations initially established 401(k) plans to provide tax-free savings for executives and are now using the plans as an alternative to traditional pensions to slash personnel expenses. The change has allowed employees to abandon their commitment to guaranteeing workers a pension based on their years of service and shift the risk of investments to their employees.

Ghilarducci described government’s promotion of 401(k) plans as bad public policy that has reduced retirement security for millions of Americans.

One way for the government to address the retirement crisis would be to establish government-managed retirement accounts for workers who don’t have traditional pensions, she said.