On Thu, 15 Aug 2002, Doug Henwood wrote:
> Think the bear market has killed Social Security privatization? Fox
> News reports on a recent poll:
>
> >Sixty-eight percent of respondents favored private accounts, a margin
> >of well more than two-to-one.
Unbelievable. But at least there are some signs of growing sense. Perhaps the moral is simply that people learn slow. But there's going to be a lot of retirees comparing notes like the following in the years to come. And like they always say, Old People Vote. Wouldn't it be nice if this became their idea of the good old days?
I think the main reason people still think 401(k)'s are a good idea is because so few of us have retired on one yet.
Michael
http://online.wsj.com/article/0,,SB1029447634364650235,00.html?mod=Page+One
THE WALL STREET JOURNAL
August 16, 2002
PAGE ONE
Once High-Flying 401(k)s Pale Beside Payouts From Pensions
By JOHN HECHINGER, Staff Reporter
NAPERVILLE, Ill. -- In the 1990s, Drew O'Connor was the family tortoise, plodding along at a low-paying but secure public job. He quietly envied the hare: his first cousin Michael Lassandrello, who earned twice his salary as an engineer at a fast-growing telecommunications company.
But, now, as the golfing buddies and former parochial-school classmates near retirement, their financial fortunes have been reversed. Mr. O'Connor has overtaken Mr. Lassandrello. The reason: their pensions.
Mr. O'Connor, a 51-year-old Illinois tax investigator, has an old- fashioned pension plan, the kind that pays a set monthly income for life. And it's a generous one: At the end of the year, he expects to take advantage of an early retirement program and draw a $54,000 annual pension, or 75% of his current salary.
Mr. Lassandrello, 50, like most employees of private companies, has long relied on a 401 (k) retirement plan. When the stock market soared, his nest egg seemed destined to provide a more comfortable retirement than his cousin's pension. But in the market tumble of the last two years, Mr. Lassandrello's retirement savings plunged 30%. If he stopped working now and wanted to be sure he wouldn't outlive his money, he could draw just $28,000 a year.
During the biggest stock-market downturn in a generation, the Illinois cousins demonstrate a telling new feature of the American retirement system. The extended bull market helped popularize 401(k) plans, which happened to be introduced just as the long boom began in the early 1980s. But this year's stock rout has exposed their risks -- and the advantages of guaranteed-payment pensions. Old-fashioned pensioners, a vanishing breed, have become unexpected winners compared with the swelling population of workers who rely on 401(k)s.
Over the last 20 years, private corporations have been rapidly shifting away from traditional pensions. More than six in 10 U.S. workers with retirement coverage rely primarily on 401(k)s and similar plans for their retirements. Even the federal government has used 401(k)-like plans as part of the retirement package for new civilian hires since 1987, while longer-standing employees can choose to retain their rich traditional pensions.
But there have been notable holdouts. Many unionized workers, including those in state and local governments and the auto and airline industries, stuck with the old approach -- an assured payout based on salary and years of service.
Now these employees, if they are nearing retirement, can hardly believe their good fortune.
"I don't want to flaunt it," Mr. O'Connor says. "I remember when everyone was building up millions in their 401(k)s. I thought, 'My God, how good they had it.' Now they're going to struggle for I don't know how long. All of a sudden, I'm the guy who looks like he's got the bull by the horns."
Meanwhile, Mr. Lassandrello, who long felt secure with his six-figure salary and rising 401(k) balance, is left to wonder. "I'm thinking maybe I should have been a police officer or a firefighter or something with a pension I can count on," Mr. Lassandrello says.
William Dudley, chief U.S. economist at Goldman Sachs, says the evaporation of retirement savings in the stock market could well inspire "a swing back to traditional pensions."
Already, a push to let workers invest a portion of their Social Security payments in the stock market has lost its steam in Washington, though President Bush says he still favors the idea.
Now, some Congressional Democrats, including Rep. Robert Matsui of California, are considering legislation over the next year that would prod companies to pool together to offer traditional pension plans that workers could carry from one job to another. One possibility: tax incentives for companies that elect to do so.
"As the baby boomers retire and feel they don't have enough money to make ends meet, you will start to see some political pressure to bring back traditional pensions," Mr. Matsui says. "It's an issue that isn't going to go away."
http://online.wsj.com/article/0,,SB1029447634364650235,00.html?mod=Page+One