The Plot Against Pensions and the Plan to Save Them

By Amy Goodman, Democracy Now!. Posted January 10, 2009.

GONZALEZ: But there has been talk of the possibility of him creating some kind of a payroll deduction for—a 401(k)-type program for American workers on top of the Social Security, hasn’t there been?

GHILARDUCCI: I hope so, because that’s actually what I’m proposing. I’m proposing that we have a mandated, a universal supplement to Social Security. It’s not an old idea. It’s just something that I have been bold enough to suggest. It would be a supplement to Social Security, but it won’t be individually controlled. An individual won’t have to go out to retail, you know, mutual funds, pay these high and hidden fees, wouldn’t have to decide what kinds of investments to make, wouldn’t have to be exposed to the risk of the stock market. And most importantly, at the end of their working life, they would get a guaranteed annuity on top of Social Security. That’s what we need. We need a supplement to Social Security. And if he’s talking about that, I’m glad.

GONZALEZ: In terms of that, how would yours work? The money that would be contributed, where would it go?

GHILARDUCCI: What we would do is mandate that everyone add another five percent of savings on top of Social Security. That money would go into a government fund. It would be run much like the pension fund for federal employees are run now. This huge sovereign wealth fund would be dedicated to all Americans’ supplement to Social Security, and it would be invested in a broad portfolio of assets: government bonds, municipal bonds, infrastructure bonds, private equities, private stocks, emerging markets. But it would be professionally managed, again, much like my pension fund is and much like the federal employees’.

GOODMAN: Retirement age is going up. What is the significance of that?

GHILARDUCCI: It's going up because we had a lot of low-wage jobs being created. And so, Americans were working longer, and American women were especially working longer. What it means when you raise retirement age is usually it means that you’re cutting back pensions. And I don’t think it’s sustainable. There is no way that we can actually have a retirement system that’s based on having people work longer. We see now that in a recession that’s just ephemeral, it’s just a fantasy.

GOODMAN: I think the Labor statistics are going to come out later this morning, and we’re talking about a half-a-million more people being put on the unemployment rolls.

GHILARDUCCI: Yeah, it’s unimaginable, you know, that that rate is so large, but it does point to the idea -- is that we can’t have retirement policy based on people not retiring. That’s not a retirement policy.

GONZALEZ: To go back to your plan and the opposition to it by the financial community, they obviously would like to be able, if there is going to be some kind of a plan for additional employee savings, to manage those funds, right, and collect all the fees?

GHILARDUCCI: Absolutely.

GONZALEZ: It would be a huge payday for Wall Street.

GHILARDUCCI: Yeah, but it would be hugely inefficient. We actually had those experiments in Argentina and in Chile and in Peru. In Chile, Peru and Argentina, those experiments came about when there was a suspension of democracy, especially -- the most dramatic cases were in Chile and Peru. And we found out, after those twenty years, is that people are not retiring with enough money to live on, mainly because those private individual mutual funds, those little private companies, they charge fees that are too high. They have to provide profits to their shareholders, and they have to—they actually have to advertise. So it’s wildly inefficient.

So, my plan, any plan that requires employers and employees to save more for their retirement, we have to. That’s actually the fact. We’re going to live longer and retire. We do need to save more. But we can’t do it through these Wall Street boutique retail firms.

GOODMAN: It’s interesting you work at the New School, which is—the president is embattled. He is Bob Kerrey the former senator. And it was years ago -- he was a Democrat -- but heading the commission to look at privatizing Social Security.

GHILARDUCCI: And that commission rejected that proposal, because most anybody who’s practical looks at the issue, and privatizing is just not practical. It’s inefficient. It requires people to do what they can’t do, which is to bear the risk of their own retirement that they can’t control when they’re sixty-five and to face the financial markets.

AMY GOODMAN: Teresa Ghilarducci, I want to thank you very much for being with us, director of the Schwartz Center for Economic Policy Analysis at the School University. Her book is When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them.

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Amy Goodman is the host of the nationally syndicated radio news program, Democracy Now!

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