Retirement realities: we need new solutions — soon

http://www.jewishworldreview.com | The stock market has made remarkable gains these past few weeks. A higher market is good for all of us, but, for years to come, many American workers will bear the strain of losses caused by the bursting of the tech and telecom bubble.

Many who had hoped to retire soon not only saw their household wealth decline, but their retirement was deferred or lost altogether. Many seniors are now returning to the workforce because they don't have the financial resources to carry them through their golden years. And the prospects for baby boomers approaching retirement don't look much better.

Last year, 1 in every 8 people 65 and older were either working or looking for work. And the annual Employee Benefit Research Institute's Retirement Confidence Survey found that nearly a quarter of those 45 and older say that they plan to postpone their retirement. If there aren't broad changes to the retirement system in this country, the ideal of retiring by age 65 could become more elusive for many of us. A recent study by AARP found that 77 percent of individuals between the age of 50 and 70 who own stocks indicate that they lost money over the last two years. And a quarter of those who reported market losses say that they may have to return to work or delay their retirement.

One reason is the shift away from employer-funded pension plans and toward defined contribution plans like the 401(k), which move the investment responsibility from the employer to the employee.

Experts say it's the way that the 401(k) has been used that is the problem. Anne Colamosca, co-author of "The Great 401k Hoax," says, "When Ted Benna came up with the idea for the 401(k) plan, he had no idea that a lot of companies would basically dump their old-fashioned pension plans and just take on 401(k) plans." Colamosca says these type of plans were originally designed as "a supplement to the old-fashioned plan so that the two of them together would really help people cope."

But, as we all know, that isn't what happened. The number of corporate traditional pension plans decreased by an astonishing 60 percent from 1979 to 1998 while the number of defined contribution plans, like 401(k) plans, doubled.

While a widespread return to traditional pension plans is unlikely at best, there are new ideas that may be a solution. One alternative that is gaining some popularity is the cash balance plan, which provides employees with an account receiving fixed contributions, usually based on a percentage of their salary plus interest, from the employer. Employees can take balances with them if they change jobs.

As Peter Orszag, senior fellow at the Brookings Institution, says, "Unlike defined contribution 401(k) plans, (the cash balance plan) does not expose individual workers to financial market risk. But unlike a traditional defined benefit plan, it does not impede worker mobility, switching jobs."

There has been some controversy surrounding cash balance plans, as some older workers worry they would lose too much in the transition from traditional pension plans. A move toward cash balance plans is only part of the answer. There is much more that needs to be done for aging Americans ill-prepared for retirement.

As Eric Sondergeld, director of retirement research at LIMRA International, says, "Employers, the government and individuals can all play a role in improving the situation." He adds that people need to save more and educate themselves about their financial needs in retirement.

Finding solutions to the retirement crisis is a clear necessity. A financially insecure older population has economic implications for all of us, and it's time for individuals, policymakers and corporate decision makers alike to work toward a solution. Soon.

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