Can You Afford to Retire? (full documentary) | FRONTLINE

[Music] for the baby boom generation there's trouble ahead workers are going to return to Despair and run out of money the reality of retirement is starting to sink in I thought when he retired it was going to be a lot different it's scary as hell the hardest thing is not knowing that I'll be able to retire good morning tonight on front line correspondent Hedrick Smith explores the changing world of retirement discovering how corporations are dumping old-fashioned pensions bankruptcy is a way to take legal promises and burn them examining how the new 401K plans are working the idea that we should all be Financial experts is a crazy idea I'm asking can you afford to retire we're now shifting from Lifetime pensions to Lifetime work [Music] thank you this is a story we could tell anywhere in America but we'll begin here in Lincoln Nebraska this top sheet says disclaimer and objectives it's Monday morning people in their 50s are getting the word on how to prepare for retirement the number one goal that's listed there says to provide you with general information on retirement planning and your pension plan benefits these people have 401k type plans and they're in for a wake-up call I have some bad news for everyone in the room Americans are not saving enough money for retirement there's a lot of people that are my age that are really going to have a very nasty surprise in about the next 10 years when I saw how much money I was going to need to maintain my standard of living after I retired that was quite an epiphany for me that day the for many Americans it used to be that your employer took care of your retirement what we're trying to say is a lot of the decisions that you're going to have to make are decisions that only you can make but now that tables have turned corporations have stepped back and put the responsibility and much of the cost on individuals our pension system has changed dramatically people aren't going to have pensions like they used to where you get a benefit for the rest of your life people are going to retire basically with 401K plans and that's all the boomer generation is finding itself long on life expectancy and short on income how many of you have seen somebody retirement age working at McDonald's or Burger King now do you think that their retirement goals are to supersize for eyes they're there because they have to aren't they I think this is a crisis in the making I think 10 or 15 years from now people who approach their early 60s are simply not going to have enough money to retire [Music] so how did the boomer generation get into this fix it's not something that happened overnight the story unfolded over a couple of decades a generation ago our parents could expect that a lifetime of work at a major company would be rewarded with a lifetime pension but all that is changing we got the yogurt and the grapefruit I guess right in the tacos and eggs that should be enough because your only could be gone three days okay that sounds good north of Seattle Pat O'Neill is headed out for another lonely Hall on the highway all right his life isn't all that different from most truckers except for one thing Pat O'Neill retired three years ago well I just turned 55 March 5th 2003. I thought well I got 35 years now I'll go O'Neill is typical of his generation he spent his entire career working as an aircraft mechanic for one company United Airlines [Applause] I always felt I was doing quite well working for United I had a work ethic and I was very loyal to the company when they called I went to work back in 2003 when United was trying to cut costs O'Neill says the company encouraged him to retire he said if you all guys want to get out and save your medical insurance for your retirement might be a good time to think about leaving O'Neill took the advice and retired counting on a guaranteed three thousand dollar monthly pension check for the rest of his life I knew I had a good retirement checking to come every month and we'd be able to just kick back enjoy life no more working midnights live like a normal human being as we call it and and spend quality time with each other but after a while patanillo got a jolt his pension was slashed by a third it was money that I worked for that I earned that I felt that I did my job and my thought is that retirement is sacred they do not touch that this is what you sign for it's flat wrong for a company to have to go back on their word as far as your pension [Music] I'm only forced to have to stay working because of what United Airlines and the bankruptcy laws the way it was indicated said they could do it and got away with it [Music] Pat O'Neill like more than a million other workers in retirees is a casualty of corporate restructuring and chapter 11 bankruptcy [Music] United Airlines filed for bankruptcy in December 2002. in the 90s United had been flying high but then low-cost carriers started eating away market share and after 9 11 United lost traffic and money big time deep in debt United sought a government loan guarantee after being rejected United filed for bankruptcy everybody knows I think chapter 11 serves a useful purpose that's why the statute exists come it's there for companies to take advantage of when the occasion presents itself Glenn Tilton had been hired as United's new CEO just three months earlier he came with experience in bankruptcy at Texaco the die was cast when Mr Tilton was hired why because Mr Tilton was brought in to do what the board and previous management didn't have the guts to do which was take it through bankruptcy and clean it up and confront the unions bankruptcy is terrible for the employee it's an absolutely horrific experience for the people who worked hard to build a company and through no fault of their own and as a result of some poor management decisions it means being forced to negotiate changes to your working conditions to your terms of employment with a gun to your head employees like flight attendant Robin geilinger felt the pressure of Management's demands for concessions the effect of the bankruptcy was stressful it was not knowing what you were going to lose in a bankruptcy as a working group with a union you know you're going to give back something start checklist departure break is complete and give back they did making concessions across the board in hopes of saving the main portion of their lifetime pensions for the long run we take Cuts in Pay we take Cuts in the area of work rules we take Cuts in the area of health benefits and we take Cuts in the area of pension benefits in two big rounds of cutbacks United's four major unions agreed to 3.3 billion dollars in cuts sacrificing to save the company but that wasn't enough United and its banks wanted more United bankruptcy attorney Jamie spray Reagan at that point in time it really became clear to everybody that there was going to be no way to exit this bankruptcy case without um taking on what I had called The Silent elephant in the room that is addressing the pension issue United's pensions had become an elephant-sized issue because for several years United like many companies put little or no cash into its pension trust funds instead United counted on credit for past contributions and overly optimistic assumptions about stock market gains to meet its pension obligations but after the market plunged the United's Pension funds were almost 10 billion dollars in the red through bankruptcy United shifted the responsibility for paying its workers pensions to a little-known federal agency the pension benefit guarantee Corporation the pbgc which ensures failed pension plans when companies get into difficulty then what they will look to do is say where are all my costs and gee I have a lot of cost here in these so-called Legacy promises that I've made to my workers in retirees I can no longer afford those now that I'm in financial difficulty perhaps I can shift those costs to other parties if we act as the backstop the pbgc financed by premiums from corporations was set up in 1974 to encourage companies to maintain their pension plans and to ensure that promises to employees were kept over 800 full-time federal employees we also have but those promises turned out to be flimsy because companies were given a lot of flexibility to interpret the pension funding rules under the Employee Retirement law known as erisa the funding rules under erisa are fundamentally flawed they're broken they are riddled with loopholes you mean Congress wrote a law that said fund pensions and then in effect gave them a free pass I'm not sure you would characterize it as a free pass but nonetheless it does not require the way it operates companies to fully fund their pension Promises by exploiting those loopholes Corporate America has created a time bomb more than eighteen thousand companies have underfunded their pensions in five years several large companies have dumped their pension debts onto the pbgc its deficit is now 23 billion dollars and threatens to balloon far larger the level of underfunding in the system as a whole which we estimated 450 billion dollars today is uh is uh substantially more than it was just four or five years ago was less than a hundred billion dollars let me get this straight you're saying that the current corporate pension system in the private sector today is underfunded by 450 billion dollars that's if everybody were to try to terminate their pension plan today in the end some warn taxpayers may have to cover the bill for failed corporate pensions I would say that 100 billion dollars would be cheap to repair the damage to our our retirement system I think it's going to cost more than that and the taxpayers are going to foot the bill believe me the government doesn't pay anything the taxpayers pay everything the risks are compounded by the major bankruptcy reform enacted in 1978. that law gives trouble companies like United a way out of their commitments to employees in 1978 we adopted a new bankruptcy code in the United States and a principal part of this was designed to adjust to the new Corporation to find ways to let a corporation that had gotten into financial trouble reorganize itself the the essence of bankruptcy is that whatever promises the company has made they can't live up to all of them and they need to find a way to deal with the fact that they promised more than they have Jamie spray Reagan the lead bankruptcy lawyer for United Airlines is the most visible edge of an entire new industry that has developed in law firms and Wall Street Banks to move companies through bankruptcy these days every large law firm in the country has some sort of bankruptcy practice we have around 100 lawyers who do nothing but this the practice has really moved to be a mainstream part of most bid law firms these days the business has mushroomed as bankruptcy lost its stigma and gained acceptance as a corporate strategy I would say that chapter 11 has become somewhat of a more accepted strategic tool than just companies filing who are about to go out of business or something like that and as a result there's more use of chapter 11 now than probably 20 years ago over time sophisticated lawyers and financial insiders figured out how to game the bankruptcy law their strategy enables companies like United to walk away from costly pension obligations it wasn't that way some years back but now it's become a virtual control situation between the management of a company in chapter 11 and the bankers they control the playing field the size the shape and generally the final score Hugh Ray a bankruptcy lawyer for more than three decades gave me an inside look at United's playbook in this fat stack of documents known as the judge's first day orders it's all available online first day orders are not actually written by the bankruptcy judge but by United and its lawyers hand in glove with its Bankers if you look in the bankruptcy code you won't see anything about first day orders it's something that's developed and the first day order practice is probably the biggest single thing that turned around the practice of bankruptcy to where it is now first the orders are not written to take care of employees but to protect the power of management and the loans of Bankers it says right here in the United uh first day order that the lenders are given super priority claims super priority not just priority but super priority it's a super priority claim and without getting Bill repka who was with JP Morgan LED United's Bank Syndicate look at it the the framers of the bankruptcy code recognize that people who are going to lend money to bankrupt companies were embarking upon a very risky Enterprise and so they created a series of safeguards one of which moved the bankruptcy loan to the head of the queue to get repaid and that's called the super priority it sounds as though through the first day orders the whole deal the whole outcome is pre-cooked absolutely the dye is cast the question up front about who will have what priorities if this business collapses it's where the whole game is won or lost ironically it is the bankruptcy laws that are responsible for much of what has happened here because bankruptcy laws currently say Banks you can take it all because bankruptcy laws don't leave something on the table for the employees and the retirees so if bankruptcy doomed United's pensions from day one why did United take two and a half years to kill its pensions I asked Jamie spray Reagan it may have been intellectually obvious but coming up with a process by which to handle adjusting expectations so people would buy into the need to address the pension issue without it becoming a situation where we would lose what we call the hearts and minds of the employees was a real Challenge and an art ultimately what we concluded was that management had a very deliberate course of action set out from the beginning of the bankruptcy which was to roll out demands for concessions over a period of time in an escalating way in order to bring the employees along without creating a spark that would have led to to real labor unrest a strike a strike what it really comes down to how much can we take away from the employees before they finally say fine you take it but I'm not working here anymore and no one else will come to work for them either that's what corporate reorganization in America has become how much less can I give you and still keep you here for United the strategy worked last February after 38 months it re-emerged from bankruptcy calling itself a vastly more competitive Airline [Music] its top management triumphantly launched the company's new stock on NASDAQ United is extremely important because it was considered a successful reorganization and that the airline came out flying the airline survived a number of the employees jobs were retained the routes were retained and it serves as a good example of how you can reorganize in chapter 11 in terms of who got what well that's another matter the banks with their super priority got back every penny plus interest plus tens of millions of dollars in fees is that paid back in cash yes first and foremost yes okay now got a bunch of fees don't you get fees as well as interest rates yes collectively how much the banks make on these fees we've never disclosed any of that stuff the restructuring industry professionals were richly rewarded Jamie spray Reagan's Law Firm was paid a hundred million dollars people have said to us that the professional costs run something like 400 million dollars uh probably in the neighborhood of that yes that's a tremendous amount of money because workers giving up you know three billion dollars worth of Pensions and it's costing 400 million dollars to get the job done I wouldn't call it cheap uh but um to accomplish what has been accomplished uh that's in the range of what happens in restructurings even in healthy companies uh in Corporate America United Senior Management got big bonuses to stay on during bankruptcy like everyone else they took a hit on their pensions but they more than made up for any losses by receiving a grant of 400 million dollars in New Stock how are you good how are you but not everyone's pension was cut all United employee pensions have not taken a hit one notable exception is Glenn Tilton who negotiated as part of his employment contract that a secular pension trust would be established for him for his retirement security we didn't mean to embarrass you CEO Glenn Tilden got special protection for his personal retirement benefit a benefit from his former employer that was bought out by United our current CEO has decided to keep his 4.5 million dollar pension it was unfair that he was keeping his in his contract and we were having to give ours up how about Glenn Tilton's retirement guarantee I'm not going there I don't want to go on the record with that one is that a good idea when when he's asking other people's pensions to be put on the chopping blood you know Glenn Glenn did a great job I think Glenn's compensation was appropriate under the circumstances Glenn Tilton declined front lines repeated request to talk about United's bankruptcy but the company says it is rehiring again training 2400 new flight attendants to replace some of the more than five thousand who left during bankruptcy so we want the bread and the and the two the person who's on the forward side of the cart United says it saved 55 000 jobs out of 83 000 pre-bankruptcy it's financial advisors both that United saved seven billion dollars a year in costs through bankruptcy five billion dollars in Cuts came at the expense of employees and retirees unions report pension losses for more than 50 000 people because the government's payout formally from pbgc is lower than United's contracts we're looking at the abandoning of corporate responsibilities we're looking at changing the expectation of the middle class with regard to health care and retiree benefits and it's just not United Airlines it's happening all across the private sector in America today the restructuring business or the chapter 11 business is just part and parcel of the American economy I call it the efficient workings of American capitalism that efficiency took a heavy personal toll on Rank and file employees people like 42 year old flight attendant Robin geilinger gallinger says she lost pay some benefits and 30 percent of her pension because of the bankruptcy I have gone through great changes in in the time I'm away from my family and the time that I have to put to make up for the difference in the loss of pay and benefits in the late 90s I was bringing my yearly income was around forty thousand now I am barely making the low in the low 30s and I'm I'm gone more I'm gone a lot more and you're making much less making that much less and then having to put away for retirement now because we don't have the pension that's an even greater strain on the income that comes in because I have to pay for medical and dental now you got Cuts in pay you got extra expenses for medical and dental you got insecurity on your pension and you're going to have to work more years more years a lot more years we're going to have all that combined yes I mean how do you feel about that I mean that's a it's it at times you want you have to hold back the tears what's what's the hardest thing not knowing the hardest thing is not knowing that I'll be able to retire United it's the hardest thing you need not knowing if the company will be here that way they will be here or not knowing if I'll be able to make the right decisions and be able to invest the ways that this new contribute contribution plan is giving us is not knowing so the uncertainty is really what's got you the uncertainty of not knowing where we're going this is going to take us this this journey what's happened to Robin geilinger is that she's been thrown into the Brave New World of do-it-yourself 401K retirement along with 40 million other Americans to understand what the future holds for them I headed for the Sun Belt Dallas Texas hub for new economy companies outside Dallas I visited a computer chip plant run by national semiconductor and industry leader in employee benefits [Music] I met Brian Connor the company's benefits manager this is this is one of our largest planets we also have one in South Portland Maine here in Arlington Texas is where we are generating quite a few chips for the cellular phone industry well what do we got here this is a level one clean room here's some suits we can count up in right as we toured the plant Connor told me that like most high-tech companies National never offered its Workforce a traditional lifetime pension it was among the early firms to latch on to the 401K we had developed a retirement and savings plan as far back as 1975. over time as the tax code has changed and legislation has evolved to meet the needs of employees retirements we have evolved with that and then today it exists as a 401K plan National semiconductor has been aggressive in promoting its 401K with employees achieving more than 90 percent participation went beyond the typical dollar for dollar company match and what we found is that if we could provide an additional 50 cents on every dollar to the employees that they would focus on it more we could raise our participation rates and we could actually get them to be responsible for their retirement did everybody get one of these pink booklets National makes a special effort to educate its employees on preparing for retirement this morning a representative of Fidelity mutual funds its 401k plan manager is leading a workshop and attendance is mandatory now before I get too deep into this let me say this and you know this you're in the driver's seat of this 401K okay you're the pilot you're going to make all the decisions so what we're looking at here these are just suggestions the responsibility is really on the employee to manage their dollars what we do is we provide tools and resources so that they don't have to become a professional money manager everybody needs to have an investment strategy I listen to a lot of financial shows on the radio television and stuff and it's where I get most of my information and uh I was actually surprised I really didn't want to come but but I came and he made a lot of sense and there's there's some strategies there that that I'm going to uh that I'm going to start doing I've been here 18 years and when I first got in it I just put my money in in funds and didn't didn't care about it just walked away and left it there how'd you do it didn't do too good I think as I started Consulting with other people I found that you need to start watching your funds and seeing what kind of games you're getting and stocks are volatile do you have any concerns about how well people are doing we're concerned every day with that that's why we provide the company match and the tools and the resources that we provide when you look at our program it's much stronger than anybody else in the industry but you're still concerned we're still concerned [Music] the test of any 401k plan is how well retirees are actually doing so I went to call on some national retirees living nearby one was a former customer tech rep Gil Tebow before I jumped into it I did my own personal research on the computer and talked with other people who were in different plans and and what was working best for them Tebow is the kind of employee 401ks are made for an engineer with a master's in Business Administration he was making more than ninety thousand dollars a year over 14 years Tebow built up a nest egg of four hundred and fifty thousand dollars well my retirement was a half a million because I got to start late I would have if I had started earlier I would have set my Target in a million but I waited too long like I think most people do but not far away I found another National retiree living a very different kind of retirement Winston Crabb retired three years ago as a fifty thousand dollar a year equipment technician during 16 years at National crab says he Faithfully funded his 401k plan my assumption was that when I got to be 65 well there would be a large amount of money in there for me to take cash out to put in our bank to utilize for whatever well that didn't work out yeah but crab's wife Bess remembers the market dropping sharply in the two years before Crabb retired so what's your recollection about the maximum amount there was in your husband's 401K 120 000 . that was our goal and that's what was there and then the market fell that's right so you lost about half of it oh we lost more than that because it went down to 45. and we built it back up to 64. and then when the day that he drew out the 401K it was uh 52. 52 000. yes things got worse crab had some debts to pay and he got socked with a tax bill when he cashed out his 401k in a lump sum I just went with information that I had and thought I was doing the right thing which I wasn't so would you wind up with out of the 52 000 I think it was 26. so how do you manage financially what do you do uh you do what you have to do for one thing you know you'd uh I had some a couple jobs in between there and my wife works well I thought when he retired it was going to be a lot different you know money-wise it was a jolt when we got to Counting funds at the end oh I'll let you know one day we had to sit down and say this is not like what we thought you know to stay afloat Winston crab had to sell most of his beloved gun collection for twelve thousand dollars you sold some of your guns sure was that hard oh broke my heart yeah you know it's uh it's been my hobby since I was about eight years old I mean it was like taking apart my liver out or something you know [Music] I was curious why would Tebow and crab have such wildly different results with the same 401K plan [Music] in Dallas I found the man with the answer a corporate benefits consultant with 50 years of experience named Brooks Hamilton originally Hamilton had been a big believer in the magic of 401ks but by the 1990s he began to notice troubling differences among employees in the 15 corporate 401K plans that he was running they were all large plants with 100 million 200 million dollars in the plan and a thousand two thousand participants or more so these were big plans and they were scattered around geographically some on the up East and some on the West Coast Hamilton dug deep into his 401k records analyzing investment yields for every single worker in every single plan we saw the same thing over and over say the bottom 20 had a re investment return for the year for the year of four percent the top 20 percent would be anywhere between five and seven times that number like 30 percent yeah 30 right according to Hamilton the huge differences between Tebow and crab reflected a far larger problem in every case the 20 at the top not only had the highest investment income uh like 30 or whatever they also had the highest average annual pay uh whereas the bottom twenty percent not only had the lowest investment income four percent they had the lowest average annual pay so what you're saying is the best people the richest people are getting richer and the middle class workers are falling further behind yes that's exactly what I'm saying I label this yield disparity I just coined the term I thought we have a yield disparity that is a financial cancer uh in this in in our great beautiful 401K movement uh and I had never seen it before but it was everywhere I looked what do you mean in financial cancer it would destroy uh the opportunity for ordinary workers to retire in dignity they couldn't get there from here it's a huge problem half of America's workers are not covered by any retirement plan 40 percent are enrolled in some 401K style plans and according to the latest report from the Federal Reserve the average family's account balance is only twenty nine thousand dollars and it's not just average Americans who have trouble making a 401k work well even the experts have trouble I have made virtually every mistake that I look out there and see other people doing it's we live busy complicated lives saving for a retirement is a really hard thing to do yeah what's going wrong everything everything has gone wrong the individual has to make a choice every step along the way individual has to decide whether or not to join the plan how much to contribute how to allocate those contributions how to change those allocations over time decide what to do when they move from one job to another think what to do about Company stock and then the hardest thing which we haven't even gotten to is what are they going to do when they get to retirement and somebody hands them a check how do you figure out how to use that over your retirement span so what you're suggesting is all this individual control may not be such a good idea well the numbers aren't very encouraging for a hard look at the numbers I visited a leading Washington Think Tank on pensions and retirement issues the employee benefit Research Institute watching an entire generation of retirees Jack vanderheim is a research fellow at his fingertips vanderhei has a huge database on employee benefits right now we have data on 16 and a half million participants from about 45 000 different 401K plans that's a lot okay when you look at that data what do you find out about the generation that's just about to retire folks between like 60 and 65. how much have they saved in those 401K plans on average it turns out that approximately three times what they have is their final salary is what their account balances are for those currently on the verge of retirement so if we're looking here people are making forty to fifty thousand a year they got 120 150 000 in their 401K right so will how many years will this cover them seven to eight years after that you basically have nothing but Social Security and what's life expectancy if you retire at 60 or 65 around 17 years so we're talking a gap eight or nine years where these folks are going to be just down at Social Security level for those that don't have anything else other than Social Security in these 401K plans that would be correct what workers need to save up says vanderheide is more like eight times their average pre-retirement salary for that you need to Sock away a lot more than what most people are doing so whatever you're doing you're saying 14 or 15 a year is what you're going to need to be putting in 30 years in a row combined employer and employee that's correct pension expert Brooks Hamilton puts the figures even higher 15 to 18 percent of pay 15 to 18 percent of pay yeah most plans think they're doing a good job if combined the employee and the employer putting away nine ten percent yeah they're they're half what they need to be I would say unless you're fortunate to be in the upper income quartiles that you're probably going to be in for a very rough ride and what does a rough ride mean a rough ride means you're not going to have sufficient Monies to pay the predictable expenses your housing your utilities your food plus the potential catastrophic medical care costs that you might be burdened with with things like a nursing home and you're talking about the middle of America you're talking absolutely and they're in for a rough ride very rough the biggest problem is low participation masses of ordinary workers are left without any 401K plans but even those who get offered one typically do not put in enough money between 25 and 30 percent of people who could join these plans don't join the plans of the possibility of contributing the maximum less than 10 percent of the people contribute the maximum another serious problem is what's called leakage too often the 401K savings account becomes the rainy day account half the people when they move from one job to another take the money out of their 401K now they may even use it for something good they may use it for further education or they may use it in the down payment for a house but it means it's not there when they come to retirement add to that the huge difficulties ordinary people have in doing their own investing I used to ask the CEO a CFO of my major clients uh often in an environment conference room some young employee would bring in coffee and all and as they would be leaving I would ask the CEO Fred let me ask you would you allow that employee to direct the investment of your account in the 401K plan and they always thought I was some kind of idiot it's kind of like don't they teach you anything down in Texas Brooks of course not I wouldn't let them touch my account with a 10-foot Pole and I say well but you force them to manage their own and they're running their money into the ground the roots of the problem some say lie in how the 401K system was born in Washington originally it was not set up to have millions of us managing our own retirement 401K plans were originally introduced as supplemental plans no one ever said oh that's and these traditional pensions and replace them with 401K plans the 401K first emerged as an Arcane sub-paragraph in the fine print of the tax code in 1978. intended as a technical fix to protect a tax shelter for executives at Kodak and Xerox no one expected it would lead to a retirement Revolution the 401K provision came about like lots of changes in the tax code comes about which is a company has a particular problem and a particular issue particular to them they come to Congress to their Senator and they start as they start asking for their their loophole under more corporate prodding the Internal Revenue Service ruled in 1981 that savings from regular salary checks also qualified for the 401K tax shelter and that opened the floodgates it electrified the industry it electrified guys like me it electrified the professional infrastructure of the benefit industry because it was my God do you realize a worker can now deduct savings for retirement the pitch to corporations was that the 401K would save them big money the new 401ks would cost them less than half as much as the old lifetime pensions which cost companies about six to eight percent of payroll and the same company let's say terminated their pension or froze it or abandoned it or order put in a 401k plan they probably were putting in two or three percent of payroll because not everybody was in the plan and the pitch to employees was ownership take charge of your future own your own Savings Plan get free money from your employer they've had a lot of sex appeal and it was power to the people and it empowered the worker and that's the way it was presented and that's the way it was sold maybe you like high tech Healthcare or the electronic sector the 401K rocketed upward on the powerful convergence of a roaring bull market computer software with spat out daily stock quotes for individual accounts and the marketing muscle of mutual funds call 1-800 fidelity all of us in America looked at that booming stock market we wanted to be part of that the 401K participants were exactly the same way and so there was just a a true boom in interest in 401ks as a way to invest in equities they're going to charge you for this service there is a fee what got lost in the Euphoria was the enormous shift in who is now paying for retirement a labor department study documented how the burden had shifted since the Heyday of Lifetime pensions of all contributions being made the worker put in 11 percent the company put in 89 percent that was in 74. fast forward to 2000. and the same source of data the Department of Labor the same way said that of all contributions being made today workers are putting in 51 percent companies 49 percent of all the contributions since 74 to 2006 there's been a cost shifting of 40 percent from contributions made by the employer to contributions made by the employee you're going to be talking hundreds of billions of dollars oh huge yeah I mean am I right hundreds of billions of dollars yes that's correct lately the media is full of stories about corporations flocking to the 401K more and more companies dumping their traditional pension plans healthy Blue Chip companies like IBM and Verizon froze their own lifetime pensions and turned to 401K plans the move is designed to save the phone giant three billion dollars over the next decade the trend is turning traditional pension plans into an endangered species and that Trend Sparks debate bringing warnings of peril for Boomers who are middle-income boomers who have only a 401k type plans and don't have the traditional lifetime pension they're at risk and I'm alarmed by what I see because they are not prepared to face the length of their retirement they're not prepared to face the expenses they will likely face this is a generation that may well end up depending on Social Security alone that's not going to be very satisfactory to them or to us as a society big drop in standard of living a big drop in the standard of living for many people who thought of themselves as middle class these 401K plans were initially supplementary plans to these basic pensions so it was fine if you left all the decisions up to the individual what's happening is the old-fashioned pensions have disappeared and so this plan that was sort of a supplementary plan is now everybody's basic plan and it's so poorly designed because it was never designed for to be in the Mainstay of people's retirement David Ray head of the profit sharing 401K Council and a long time 401K booster argues against a rush to judgment on the 401K the reason is because most people haven't been in the system that long I mean we talked about the real explosion in the system as in the early 90s these people haven't been in the system long enough to take advantage of that long-term compounding I mean let's face it older baby boomers are really going to have to put the savings pedal to the metal and that's why you know we have special programs so they can contribute more to the programs and stuff but they weren't in the system long enough but in my travels I had found evidence that it may not be just a question of time good morning everyone back at that Workshop in Nebraska I had learned that Nebraska had 40 years of experience with a 401k style defined contribution plan for state employees hope you have some time left before you actually retire Nebraska is a unique laboratory for 40 years it has run two different kinds of retirement plans side by side some employees covered by the traditional lifetime pension others buy a 401k style defined contribution plan both were top-notch plans with mandatory participation and contribution levels and a seven percent employer match but the state was still concerned the state legislature commissioned what is called a benefit adequacy study they wanted to have a consultant look at all of the plans and determine the adequacy of the benefit that the state was providing only you can make the study showed that lifetime pension plans with professionally managed Investments did far better for employees than the 401K style defined contribution plan we've had experience since the mid 60s and the people retiring from our defined contribution plan do not have the kind of an account balance which is basically what a defined contribution plan gives them an account balance it isn't sufficient for them to live on in retirement it's just not adequate 40 years hasn't done the trick it's not a matter of time I don't believe it's a matter of time I believe it's a matter of understanding what it takes for the employee to take a hold of this and utilize it and earn the kind of return that they need to have you're talking people who are not investment professionals after the study Nebraska ended its 401K style plan for new employees and allowed old 401K participants to shift to the lifetime pension plan there's nothing wrong with the traditional defined benefit plan it works if it's done right David Ray is doubtful he asserts that much of corporate America has already abandoned lifetime pensions as too expensive in a global competitive environment that's you you can't do that you have to have the financial flexibility to spend that money on new redesign of some product uh not putting money into a benefit plan any questions about the basics of the plan I want to try to simplify this for us but Ray concedes that the 401K system must be reformed well I I don't shy away from the fact that there are flaws that need to be fixed I shy away from a representation that the system is fatally flawed because it is not the system is not fatally flawed like any other system you have to make it work and you have to learn and improve it they're adding a new feature to your plan it's called retirement plan manager it's where you're handing the reins over to Fidelity but David Ray says the path to real reform is putting employers firmly in control of 401K plans the system is going to where employees do nothing and good things happen money is going to be taken from their paycheck and put into these programs and then it's going to be automatically invested in a in an appropriate Diversified program on their behalf so it sounds to me that if you move to a system where the employer is by default putting employees into the 401K plan determining their level of participation and then managing the money we're virtually back to a defined benefit plan except that the employees are footing fifty percent of the bill and they've got all the risk at the far end instead of the employer well I don't know I think your ship but the question is do they really want all that choice do they want all that responsibility and what we're finding is they don't they want the employer to do that for them and that's where the system is going back to where it was in the old days for most workers raise reforms haven't happened yet and may never happen what's more some experts question whether the 401K system is capable of carrying the burden of being America's Retirement System I regret the fact that our strategy now our retirement income strategy and major companies is the 401K because I I think it it uh it may be fatally flawed I know that there's a growing number of people who feel it's not fixable that it cannot be fixed the whole retirement system in fact of the country isn't I think very poor shape and it's going to be the next big financial crisis in the country I honestly believe I don't see that the our Administration or our Congress is giving it the attention that it really has to have I don't think anybody has a crisis kind of an attitude toward this [Music] meanwhile millions of ordinary Americans are facing the crisis of retirement on their own and the options are few Pat O'Neill is still behind the wheel I'm not unique there's people all across this land are in the same boat I'm in didn't see it coming and they just really their back is against the wall so they got to do what they've done all their life and so you got to go to work Winston crab is leaving Texas for a new job and another computer chip plan I'm going to New Mexico to work in a chill plant again as a safety officer here you are 68 for retirement years heading off to a new job like a young guy 28. yeah and Robin geilinger is worried about what lies ahead I feel very uneasy about where I'm going to be in 20 years and I'm afraid that I'm going to end up having to work my golden years doing things that I didn't necessarily want to be doing Baby Boomers will be facing a very different kind of retirement life than their parents the research shows that they might be able to keep the same amount of income you know relative to what they earned so the middle class baby boomer may also maintain their middle class lifestyle into retirement but there's one big difference the only way they can do it is if they work the only source of income to retirees and I understand the irony and what I'm just going to say the only increasing source of income to retirees is from work working longer working longer so what is the meaning of the word retirement if the only way you can live in retirement is to work the answer is there is no meaning to retirement anymore we're now shifting from Lifetime pensions to Lifetime work it's the end of retirement [Music] next time on Frontline these women have been torn from their lives taken from their families and sold into slavery they are victims of a multi-billion dollar international business the traffics an estimated 500 000 women a year Frontline goes undercover to tell the tragic story of the sex trade next time on Frontline front lines can you afford to retire is available on video cassette or dvd to order call PBS home video at 1-800 play PBS thank you funding for Frontline is provided by the park Foundation committed to raising public awareness additional funding for this program from the Nathan Cummings Foundation Frontline is made possible by contributions to your PBS station from viewers like you thank you [Music]

Channel: FRONTLINE PBS | Official

Views: 1,022,283

Keywords:

Id: dKlSOi5f6tQ

Length: 54min 57sec (3297 seconds)

Published: Tue Aug 16 2022

Reddit Comments

[u/LackingC10H12N2O]

Retire?? I can't even afford to live right now lol

[u/bwinsy]

A lot of what’s mentioned still rings true today.

[u/djvam]

What good is retirement when you're living in a post apocalyptic wasteland?

[u/dgmperator]

Lmao no, next question.

[u/[deleted]]

This was 16 years ago. What have we done to improve the outlook for retirees in the USA? I worry about my parents having saved enough to get by very long after retirement.

[u/wazzel2u]

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