According to Ghilarducci (minute 30-58), the guiding principle in any retirement system should be that “we all deserve time at the end of our working lives for our own lives, to control the pace and content of our time.” Wolff and Ghilarducci go on to discuss, what are pensions?, how have they changed?, and what is “the pension crisis”?
Ghilarducci highlights that the Social Security Act of 1935 (SSA) created the Social Security system and made old age benefits universal. Victories for labor unions continued into the 1950s and 60s, as negotiations held firms accountable to the standards set by the SSA. Pensions were originally defined-benefit plans, or a secure amount of compensation one would receive upon completion of their working life.
A well-functioning retirement system stabilizes the economy. A secure retirement allows people to make other long-term investments throughout their life, such as a home, real estate and education. It can be a path to upward mobility or at least a safeguard against downward mobility for future generations.
Our current pension crisis is characterized by the erosion of retirement security. Defined-benefit plans gave way to the current 401(k) defined-contribution system. In the defined-contribution system, benefits are voluntary, and more than half of workers do not have access to an employer-sponsored retirement plan. Lower earners are less likely to have access to a retirement plan, and higher earners can save more throughout their working life. This is the basis for a twin crisis of inequality and retirement insecurity. Without secure employer-sponsored plans, lower- and middle-income workers are working later in life, squeezing the years of retirement time that ought to be enjoyed. Even those who do have plans pay high fees on their IRA and have confusing and sub-par investment options, leaving many IRAs with negative returns.
“We need to revive that ambition we had to ensure quality of time in end of life,” says Ghilarducci.
Referring to the ideal of universal support set by the SSA, Ghilarducci calls for mandatory retirement savings. The pension system should benefit employees and the real economy rather than financiers of retirement accounts. She proposes Guaranteed Retirement Accounts as a well-managed public-private system to ensure retirement income for all workers. Twenty-nine states are currently in the process of pension reform toward public-private systems. Finally, there are steps individuals can take to support the need for retirement reform, including voting for representatives that would expand Social Security and Medicare.