The Plot Against Pensions and the Plan to Save Them

The following is a transcript from an interview from Democracy Now!

For the 50 million Americans with 401(k) retirement plans, 2008 is a year many wish they could forget. Workers saw their 401(k) plans lose between 20 and 30 percent of their value as the Dow Jones Industrial Average suffered its worst year since the Depression. Between October 2007 and 2008, more than $1 trillion worth of stock value held in 401(k)s and other defined contribution plans were wiped out. For workers nearing retirement, the losses have been devastating.

Meanwhile, several major corporations have recently announced they are suspending matching contributions to workers’ 401(k) plans due to the economic crisis. The firms include FedEx, Motorola, General Motors, Starbucks and Sears. Congress is now considering overhauling the 401(k) program.

AMY GOODMAN: Our next guest, Teresa Ghilarducci, testified before Congress recently and proposed establishing a system where workers pay into a government-managed fund that would offer a guaranteed monthly pension at retirement to supplement Social Security. Her plan has been intensely criticized by the finance industry. One columnist described her as the "Most Dangerous Woman in America.”

Teresa Ghilarducci is the director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research. She is the author of the book When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them.

Well, I am sure risking a lot here, having the most dangerous woman in America sitting next to us, but we’re willing to take the risk. Professor Ghilarducci, explain what’s happening now in light of all -- well, Obama just spoke on the economy yesterday.

TERESA GHILARDUCCI: It’s really the end of a thirty-year experiment with a do-it-yourself pension system. The United States stood above all other nations in saying, “Look, we’re going to hand over this saving and investing responsibility over to individuals. They want control. The stock market is healthy.” The finance industry told people that all you had to do was invest in the stock market, wait for a long term, implied that that long term would end at the end of your working career and you would have enough to live on for the rest of your life. And that experiment is over: it failed. And just like the Great Depression, just like the policies proposed in the Great Depression that brought us Social Security, I think we’re at that point now where we have to rethink that experiment and rethink how we get people their valentines, their pension valentines.

JUAN GONZALEZ: When you say this experiment, I mean, there was an enormous shift in terms of the percents of employees who were getting what’s called defined benefit plans, as opposed to defined contributions. How did that happen? And how big was that shift?

GHILARDUCCI: Yeah. Well, in the 1970s, we passed a law that said that if companies were going to promise a pension, they had to fund it. That was ERISA. And that was a good idea. But then, only about 50 percent of Americans, at any one point in time, had a pension. But the pension was a traditional pension called the defined benefit pension. Even though half had it at the time, it meant that as people got older, they often got into jobs with those kinds of pensions.

GONZALEZ: And by defined benefit, that meant that they were guaranteed a certain income per month when they retired.

GHILARDUCCI: Yes, that’s right. It was based on years of service and on pay, so lower-income workers got less, higher-income workers got more. But that was fair. The point is that it was guaranteed for the rest of a person’s life. And that’s precisely what people want when they retire. They don’t want to be rich. They don’t want to make it big in the stock market. That was always seen as something you did in Las Vegas or with money on Wall Street, money that you could afford to lose. The idea is that pensions were supposed to be secure for the rest of your life.

And we now have a system where older people who are retired have Social Security and their pension on top of that, and we have the great success story in America, was that we went from the 1950s, where to be old meant that you had a high probability of being poor, to a situation now, even though it may be at risk, it may be over, where if you are old, you could actually count on some income. Thank goodness we have Social Security.

GOODMAN: Well, what about what are called the “entitlements.” In fact, Barack Obama referred to entitlements yesterday. What do you see is the future of Social Security, of these pensions?

GHILARDUCCI: Well, a comic said that George Bush’s best success was to try and privatize Social Security. And why that was funny was because it was his largest failure in his initiative for bold domestic policy. It meant that in 2005, when he tried to do that, that Americans realized how much they had at stake in Social Security. Barack Obama, I predict, just can’t touch that. There was a huge political movement against privatization, and that movement said, “Stop. We need this program.” I just can’t imagine Barack Obama going anywhere near that entitlement.