http://www.afscmeblog.org/2010/09/28/americas-failed-401k-experiment/?__utma=1.1847225545.1261531521.1276721935.1276731138.86&__utmb=1.1.10.1285807204&__utmc=1&__utmx=-&__utmz=1.1275745986.79.4.utmcsr=google|utmccn=%28organic%29|utmcmd=organic|utmctr=AFSCME%20member%20deaths%20on%209-11&__utmv=-&__utmk=121461384
September 28th, 2010
This entry by AFSCME Secretary-Treasurer Lee A. Saunders is cross-posted from The Huffington Post and Firedoglake.
While the unfunded pension liabilities in many public retirement funds have received an inordinate amount of attention, the larger retirement deficit of most Americans is not generating the level of concern that it deserves. Individuals who have been left on their own to save for retirement in 401(k) accounts face challenges that are not being met. As a result of the financial crash that led to the worst economic crisis since the Great Depression, the retirement savings of most baby boomers — which were already inadequate — were reduced to levels that may create genuine impoverishment as the boomers retire and enter their 70s.
Because 401(k) accounts are rarely professionally managed, individuals are often exposed to excessive risk. When the market goes bad, individual investors are hit the hardest. Many Americans with 401(k) accounts lost one-third to one-half of their “nest-egg” when the equity markets collapsed in 2008 and 2009. Because most boomers are now well over 50 years of age, they have little time to accumulate adequate retirement savings.
Rather than focusing on the real problems facing most future retirees, much of the media has been focusing instead on problems facing public retirement funds. While the funding levels of some of these plans will present real challenges in the future, the problems can be resolved over a period of 30 years under generally accepted accounting rules. What’s more, the combined deficit in our major state and local government retirement systems represents less than 2 percent of total state and local government spending over the coming 30-year period. When we consider that many state and local government budgets have been cut by 10 percent to 40 percent over the past three fiscal years, it’s not too difficult to see how governments can rebuild their pension funds once the economy recovers and tax revenues return to more normal levels.
Most government pension funds have 70 to 75 percent of the assets necessary to provide promised benefits. On the other hand, the median 401(k) balance for workers who have had consistent access to such an account was just $43,700 at the end of 2008. But, most employers do not offer such access, and many workers do not have the ability to consistently save. So, the median account balance of all 401(k) accounts is less than $13,000, barely a fraction of what is needed for a secure retirement. In aggregate, the gap between what Americans have saved and what they will need in retirement has been calculated at $6.6 trillion.
FULL story at link.