Out of time and not enough money

Out of time and not enough money - How shifting the retirement liability bankrupted the “B” Generation

Of all the economic and political changes that have occurred in this country over the last 35 years, nothing has had more of an impact on the “B” Generation than the demise of the pension and the rise of the 401k plan as the replacement for financing retirement.
There was nothing of substance put in place to assist the boomers with taking over this burden from the corporation. If you think about it, the success corporations had with shifting this liability to the employee gave them the idea that financing other employee benefits, like health care insurance, could also be shifted to the employees, also with little or no assistance for them, and free up even more balance sheet capacity for the corporation.
It is my belief that when the country’s major corporations accelerated the termination of their pension plans in the 1990’s, they disposed of the assets supporting this liability to the employees who were all to eager to buy them for their own retirement account bidding up their price. This partially explains the bull market condition that existed until 1999 and why new, younger and even legacy companies that shed these liabilities saw their stock process rise dramatically during this time.
We see the difference now with many legacy companies that did not or could not transfer these liabilities to their employees now having a significant competitive disadvantage, e.g. the U.S. auto makers, and their stock prices have plummeted as a result.
I honestly believe the next leg of this issue will manifest itself with the state and local governments which are bound by law to retain the liabilities for their employee’s retirement and health care causing massive budget deficits for several more generations. A great time to be a near-retirement government employee because a substantial part of their retirement income and health care benefits have been secured for the rest of their lives. How long before this become a nasty political issue as the private sector employee continues to lose their entitlements and see their retirement assets dwindle in value due to the massive build up of government debt that will have to be financed by higher taxes on everyone sooner or later.
An interesting irony that the private sector employee will see their standard of living decline while supporting the same if not better standard of living for retired government employees through taxation. They will see government services curtailed as more and more of their future taxes go towards paying for public employee retirement and health care obligations carried on the balance sheets of government at all levels. I believe many boomers in the private sector thought it would be the other way around.

To get to the point, the shift of the retirement liability from the corporation to the employee was one of the first transfers of risk to the new ownership society. There after companies became almost completely hands off in helping employees manage this new huge responsibility for their retirement. Guidance on investment selection and risk management were outsourced to a cadre of advisers from the insurance companies, asset managers and brokerage firms who were attracted by the fees and gave largely perfunctory service to employees and many did not even know that advice was available.
But I think the most egregious mistake was that companies never told their employees the amount of the retirement liability that was being transferred to them, putting millions of employees at risk for under funding their retirement. I think most people assumed that if they deferred from their salary the maximum allowed for that year then they were adequately funding the same standard of living they had while employed. How wrong this assumption is. At least with a traditional pension, employees got an annual statement showing them what their pension income would be once they were eligible to retire.
To keep this balanced, I am not totally sympathetic to employees who never embraced this responsibility, or treated it too lightly by not saving enough. But this is where it ends.
Somewhere in the shift of this liability was a breach of a fiduciary obligation by companies for not properly preparing their employees to manage this responsibility and not disclosing the retirement liability the employees had assumed. Would you just hand you car keys over to your teenager whose only exposure to driving was watching how you did it?
It’s imperative that the generation “X” and “Y” cohorts recognize that if they work in the private sector, the self funded pension is here to stay and that meeting your future retirement liability requires almost a century of life of saving. Sad, but true, most have already lost the compounding benefits for a quarter of that century since birth – literally, no different than what happened to the “B” generation who were deprived of compounding benefits during the first 15 years of their career when the traditional pension benefit was withdrawn for most.

Andrew, sorry I still can't find a more positive topic to discuss. But I will.