Benefits and contributions

Workers and their families should be made secure against unemployment, sickness, accident, old age, and death. Individuals have the first—but not the sole—responsibility to secure their future. Personal savings and private pensions are two important elements in achieving that security. 

 -- United States Conference of Catholic Bishops, A Commitment to All Generations: Social Security and the Common Good 

As Catholics, are the following financial news items anything we should care about?  Within the last six trading days:

• The Dow Jones Industrial Average surged 600 points a week ago today when the Fed chairman indicated that interest rates may not be going up much farther
• The Dow jumped another 300 points on Monday, on initial news that the US and China had agreed to ratchet down their trade war
• Yesterday, the Dow gave back those gains in reaction to adverse news on an interest-rate indicator called the yield curve which may be signaling a coming recession, coupled with reports that the US-China trade deal may not get done, with the president tweeting, "I am a Tariff Man".

Well, I care.  I admit I'm among the tiny minority who finds economic news at least mildly interesting.  But I also care because I'm self-interested: I am counting on a 401(k) and similar investments to fund my retirement, and these wild market swings may have an impact on my retirement readiness.

In a recent comment here at NewGathering, Katherine recalled the turn of the century/millenium, when the dotCom bubble burst:

People approaching retirement age took a big hit. Some people lost a big chunk of their 401k. I lost some, but being pretty risk-averse I had stayed out of the high-roller funds. What was worse was that the company froze their defined pension fund. What was already there was safe, but no new contributions from either the company or the employee were allowed. And no new people were allowed into the fund. Bottom line, the income from that is about half what it would have been had they continued to fund it. I guess one has to look at it as a glass half full! Now of course when you say "pension", people my kids' age and younger look at you and say, "What's that?"

Katherine's story is not too different than what other contemporary workers have experienced, including me: an employer has transitioned its workforce from a pension plan to a 401(k).  In doing so, employers have transferred a ton of risk to their employees.  Off the top of my head:

• Some employees neglect to opt in to their company's 401(k) plan at all.  I see this especially among twenty-something employees, for whom retirement is this nebulous thing so far in the future that it's not real to them, and who probably are earning relatively low wages and believe they need every penny that comes in on their paychecks to pay for their car, their apartment, their student loan debts etc.
• Some employees join the 401(k) plan but, for the same reasons that others don't join at all, they don't contribute enough.  This is particularly pernicious because the company's contribution typically is set to match the employee's contribution (up to a ceiling of, say, 5% of the employee's paycheck).  If an employee elects to contribute 2%, the company will match it with another 2% (or a lesser amount; a lot of employers don't match dollar-for-dollar but match, say, 50 cents of the employee's dollar),  If it turns out that the employee should have been contributing 5% instead of 2% in order to have enough saved for retirement, the employee is the one who is out of luck at retirement time
• Some employees don't wait until retirement, but draw money out of their 401(k)s while they're still working.  The employee is supposed to pay it back - it's like a loan - but they might not.  
• Some employees make unwise investment decisions with their 401(k) accounts.  If your investments don't earn the rate of return you need - again, you're out of luck at retirement time

I've had a 401(k) account for something like 25 years now.  I've always contributed the maximum amount that is eligible for the employer match. (Prior to that, I had pension funds, which I've rolled into other investment funds when given the opportunity.)  I'm 57, and all I can tell you is: I can't retire today.  I need to keep working, probably for at least 10 more years (and at my age, that's a risky proposition in itself) to have enough saved to be able to retire without feeling too much of a pinch.

So how did this all happen - that we ended up with 401(k)s rather than pensions?  I'm not much for conspiracy theories, but I really do blame big business, in cahoots with Congress, for this one:

years ago, employers persuaded Congress to relax the rules to allow them to use their overfunded pension plans to help cover other benefits, such as retiree health plans and early-retirement buyouts (which preserved cash the companies would otherwise have used to pay for both). Although that might have sounded like a good idea at the time, it essentially allowed companies such as Verizon and General Motors to use pension assets to finance corporate downsizings ...Separately, changes to accounting rules required companies to disclose future pension and retiree-health-plan obligations on their balance sheets. On the surface, the changes seemed a step toward greater transparency. But the new rules had a perverse effect: Cutting future retiree benefits improved a company's bottom line, which in turn increased executive pay tied to corporate earnings. 

So what can be done?  I'm afraid I'm not optimistic.  Saving for retirement with a 401(k) is one of a number of fundamentally unequal economic relationships and transactions to which individuals are subject: even if I am inclined to criticize what my current employer is offering, it has the financial professionals and lawyers and Congress on its side, while I have neither power nor expertise in investing and saving for retirement.  My options are to take what's offered, not take what's offered, or go find another job somewhere else.  Unless we rediscover the virtue of solidarity, and infuse it into workers, I think we're stuck.