Remember how Enron employees found their retirement accounts ruined because company policy blocked them from selling Enron stock while the stock was crashing? Congress is currently debating pension ''reform,'' but only of the most flagrant abuses.
But there is a much bigger story here. It isn't just that some companies irresponsibly lock up workers' retirement assets in their own stock. Fewer and fewer Americans even have secure pensions.
As recently as 1980, one American worker in two had "defined benefit" plans. All during your working life, the company built up a pension account on your behalf. At retirement, your pension, based on your pre-retirement income and years of service, was guaranteed as long as you lived.
No longer. Only one employee in four now has such coverage, mostly in old line companies and unionized ones, and their share of the work force is dwindling.
Instead, this is the age of 401(k)s. As we saw in the Enron case, these plans can be a big problem when pension holdings are concentrated in the company's own stock and the company prevents the worker from diversifying.
But that's only the most extreme problem. Unlike tried and true defined-benefit plans, 401(k) participation is optional for the employee. The company will match a small employee contribution, say, up to 3 percent of your paycheck; if the employee wants to put in more, it all comes out of take-home pay.
There is also a tax benefit; your pension contribution is tax-deferred. But a lot of lower income employees simply can't afford to forgo the take-home pay, and thus miss out on the employer match. In addition, the employee bears all of the risk -- of the stock tanking, the market declining, or just of living too long.
Basically, what has occurred is a shifting of costs and risks from employer to employee. And the same thing is happening with health care.
The next generation of health insurance will be a defined-benefit program. The employer allows the worker a certain annual sum, say $3,000 for health insurance, and the worker is free to go out and buy coverage. But if decent insurance for a family costs $6,000, too bad.
A recent landmark study by the New York University economist Edward N. Wolff for the Economic Policy Institute shows all too vividly the impact of the shift away from traditional pension plans. Although the value of the stock market increased by 248 percent between 1989 and 1998, the typical retiree was in many respects worse off.
How can that possibly be? Despite a lot of claims about the majority of Americans now being stockholders, the typical American owns very little stock. Most 401(k) plans do not accumulate enough to live comfortably on. Compared to traditional plans, they are a bad deal (except for the company). Wolff found that in 1989, 29.9 percent of retired Americans had to live on less than half of their pre-retirement income. But by 1998 -- again, after a record stock market boom -- that percent of stressed retirees had risen to 42.5 percent. The typical (median) retirement wealth held by persons in the pre- retirement ages of 47 to 64 also declined, by 11 percent.
So the age of the 401(k) has been a bad deal for most Americans, this despite a booming stock market whose performance will not be repeated in the lifetimes of most retirees. Wolff writes, "An extraordinary 15-year run-up in stock prices at a time when public policy was encouraging expanded individual investment for retirement did not enhance income adequacy for the typical household, even when the market was at its height."
Of course, there was one part of the retirement system that worked just beautifully -- Social Security. This part of the system is the ultimate defined benefit plan. It is adjusted for inflation, it is totally portable, and it covers you as long as you live, whatever happens to the stock market.
But this one part of the retirement system that isn't broken is the part that privatizers want to "fix." They want to make it more like a 401(k) plan. Instead, says Wolff, we should be enhancing Social Security.
It would also be smart policy to require all employers to have decent pension plans, which are portable and which are controlled by independent trustees. But this idea, like Social Security, also requires government to aggressively defend the interests of present and future retirees. These government protections may be unfashionable, but we keep learning that they are essential.
