On Retirement
According to the Minneapolis Star Tribune, a Treasury Department decision looms regarding if and how it will use the Kline-Miller Multiemployer Pension Reform Act to modify the income of current beneficiaries of the Central States Pension Fund. This law, passed in 2014’s all-encompassing omnibus bill, remains relatively unknown but has major implications. Some coverage has been afforded locally due in part to one of the namesakes being an area Representative and the local impact of thousands of area retirees facing such a chilling financial prospect. Unfortunately, the true impact of these changes and their far-reaching implications are not well known, in spite of retirement security being an issue that affects all people.
These proposed changes are understandably unnerving for members of this specific pension plan, but they also should be horrifying to working people everywhere. While defined-benefit plans may sound like a luxury to most working aged people in today’s economy, there are broader implications that affect all. According to a study by the National Institute on Retirement Security, the median retirement account balance for households nearing retirement is a scant $12,000. Once you expand that to all households, that number drops to $3,000. And remember, half of all households aren’t so fortunate as the numbers above imply.
Simply put, the United States is facing a retirement crisis, and the simple treatment of purported symptoms will not heal the disease from which the system suffers.
That being said, there is one retirement program that works extremely well. The Social Security Act of 1935 created its namesake program, and it has been paying out benefits ever since while turning itself into a well-oiled machine with administrative costs edging below 1% thanks to public servants who wisely invest the funds and have a fiduciary duty to the American public. While the common narrative seems to be that the program is going bankrupt, the system’s annual Trustees Report consistently tells a different story. The Old-Age and Survivors and Disability Insurance (OASDI) trust fund grows every year, and is expected to continue growing in the coming years.
It’s true that the coming wave of retiring Boomers will put the first ever strain on the program’s trust fund, but if there were ever an excuse to draw down some of those reserves this would be it. According to the latest Trustees Report, we could do absolutely nothing to strengthen the program and the the OASDI reserves would last until 2034. By that time the earliest of the Baby Boomers would be approaching their 10th decade. If we were to simply remove the current $118,500 FICA contribution cap, that date would be pushed out considerably thanks to wealthier workers contributing at the same rate as everyone else.
Social Security ties into another prominent issue in today’s discourse: inequality. The brilliance of this federally-run, defined-benefit program is that workers are covered whether they live to be 68 or 108. I have a defined-contribution retirement account, but I have no illusions of that carrying me gracefully into a second century nor will I have any use for those funds were I to pass before I deplete them. Any system that asks you to estimate how old you’ll live to be in order to make major financial decisions begs for great scrutiny. This distinction is why Social Security is considered Insurance, and it functions with far less overhead and hassles than most of the insurance you have likely encountered.
While I have no concerns about the health of the Social Security program, I do have serious reservations about its ability to meet the needs of retirees trying to live on an average of just $1,335 per month. Social Security is already default retirement program for most retirees. Most elderly households rely on Social Security for most of their income. This is even more apparent when you look at unmarried households. Whether I’m contributing to a pension plan or a personal retirement savings account, I’d much prefer put that money towards expanding Social Security to cover all people with a basic income that affords them dignity and considerable freedom from financial worry.
America has fast become a land of haves and have nots. Take for example when the great recession took hold, bankers received large bonuses while millions of working people lost their jobs or their homes. When pressed on this divide, people like Larry Summers insisted contracts are sacred. Shouldn’t our word be just as strong when we make promises to the working class? Social Security as the de facto retirement solves this problem in part, as it’s hard to hide cuts to the program that everyone relies on. That’s how Social Security and Medicare have survived a generation of austerity relatively unscathed.
Additionally, when downturns hit is a time where Social Security really shines. The program’s impact on the economy currently helps to provide over nine million jobs and one trillion dollars of economic activity. A bolstering of the program would only serve to raise those numbers. Additionally, poverty levels would skyrocket without Social Security. Over 22 million people would fall into poverty without the program, including over a million children. Boosting the program would only serve to lift more out of poverty.
There is no need to make this a partisan issue, nor has either of our major parties been great on this issue. The Kline-Miller pension act that allows for the proposed multi-employer pension plans cut was named after a Republican and a Democrat and was pushed by President Obama.
While I’m staunchly opposed to gutting the incomes of truck drivers and others who spent decades holding up their end of the bargain, I also believe it’s past time to move towards a universal retirement system which isn’t reliant on the ebb and flow of particular industries, the predictive power and investment savvy of administrators of small pension funds, or the savings discipline and actuarial skills of everyday workers trying to plug a private retirement account.
Social Security has been the answer for our retirement riddle since its inception, and will be for decades to come. Our only job is to realize, embrace, and advocate for this fact.
