ERISA made private retirement plans fairer and helped ensure that workers received the pensions their employers had promised to give them at retirement. ERISA also created the Pension Benefit Guaranty Corporation – the federal pension insurance program. As a result of ERISA, most traditional pension plans are insured, adding an important layer of protection for workers and retirees should their companies go out of business.

Traditional pensions are just as important today as they were when ERISA was passed, because they provide retirees with financial security through the ups and downs of unpredictable economic times. There are, however, still many gaps in ERISA that need to be fixed, and more workers that need to be covered.

While much of the recent focus is on expanding coverage through individual retirement accounts (IRAs) and 401(k)s, we must not forget about ERISA’s initial goals of providing secure retirement benefits to all workers of all economic backgrounds – from the executive to the teacher to the janitor.

Increasing access to IRAs and 401(k) saving vehicles is a good thing, but these saving vehicles are not the complete solution. So far, they have not shown that they can provide sufficient or secure retirement income for most people. Also, the trend towards more individualized saving vehicles has led to new problems for participants that now need to be addressed by the law – participants need more information about the fees they pay for and participants need access to independent investment advice.

Happy Birthday, ERISA. You’ve come along way and helped millions of workers attain secure retirement incomes. But after celebrating where you came from and what you have accomplished in the past, it is time for you to move forward and meet the future challenge of providing safe and sufficient retirement incomes to all working Americans.

In a recent report, Fidelity Investments notes that the percentage of Fidelity customers who borrowed from their 401(k)s increased over the past year from nine to 11 percent. Currently, a whopping 22 percent of account holders - more than one in five - have an outstanding 401(k) loan. This amounts to approximately 2.5 million Americans, the highest level of people borrowing from their 401(k)s in 10 years.  

In addition, the percentage of Fidelity customers that have taken hardship withdrawals from their 401(k)s increased over the last 12 months. The company states

Fidelity has found that the average age of those taking a loan or hardship withdrawal is between 35 and 55 years old - a worker’s peak earning years - when individuals often have to deal with multiple, competing, financial challenges. Distributions from a 401(k) or 403(b) are taxed as ordinary income, plus if you are under age 59½ you may be subject to a 10% early withdrawal penalty.

Why has there been such a spike in loans and early withdrawals? According to Fidelity, many who have been hit hard by the struggling economy used their 401(k)s to “prevent foreclosure or eviction, pay for college, or purchase a home.” James MacDonald, Fidelity’s President of Workplace Investing, remarked that for some people, taking money out early from their 401(k) was needed because it “may be their only form of savings.”

As we’ve noted before, 401(k) loans and early withdrawals may be a short-term budget fix, but it might not be the best long-term strategy, especially if the 401(k) is your only retirement plan. The Fidelity data covers only accounts that the company manages, which leaves me wondering:  how many more Americans have taken loans or early withdrawals from their 401(k) plans? And what will any of them have left when it is time for them to retire? 

Social Security, you’ve been providing an economic lifeline that millions of Americans rely on. It’s too bad that on your 75^th birthday, you’re under siege like never before.

What a bunch of ingrates, right? You’ve become so wildly successful that policymakers have started to take you for granted. Even though you help every American family - young and old - you’re terribly misunderstood.

Among the misunderstandings is that you’re “broken” and must be reformed.

That’s a laugh. You’ve been around for 75 years, you’ve never missed a payment, and you’re able to pay full benefits for another quarter of a century - and that’s without making a single change to the way you work.

Who else can make such a claim?

I’ll tell you who?  Nobody and no program.

Here’s what you should tell Americans: Without you, there would be terrible poverty among the elderly in this country. Not to mention the scores of children and people with disabilities who would be in dire straits, too. Take a look at the facts:

 –And Social Security also has lifted 6.5 million children under age 18, or nearly 9 percent of all U.S. children out of poverty.

–Without Social Security 8.1 million women age 65 and older would be living in poverty.

–Almost 7 out of 10 older Americans depend on Social Security for more than half their income and one out of 4 receive ALL their income from Social Security. 

–If not for Social Security, almost 13 million additional older Americans would be living in poverty.  

So, on your 75^th birthday we should be hailing you, Social Security, as THE great American success story - not attacking you.

This is why Retirement USA - a coalition of consumer interest groups, unions, and advocates for retirees - has as one of its core principles the insistence that Social Security benefits not be touched. Retirement USA is advocating for a new retirement system for future generations of Americans (in addition to Social Security) that is Universal, Secure, and Adequate.

Retirement USA is sponsoring “Wake Up, Washington!” month, a national speak-out about retirement security that will take place from September 15-October 15. This month will be a time for Americans across the country to tell lawmakers to keep their hands off of Social Security and to fix our broken, patchwork private retirement system.

So, Social Security, I hope a lot of your fans will help us celebrate your 75^th  birthday by making their voices heard in the Retirement USA story bank!

Instead of sponsoring pension plans that treat all participants equally, some employers circumvent the rules by creating “carve-out” pension plans. These plans often provide rich benefits for senior, well paid employees-often the company’s owners and officers-while covering only a relatively small percentage (or in some cases none) of the non-highly paid employees. While these plans may comply technically with the tax rules as they are now interpreted they are fundamentally unfair. 

Case in point: An article in Physicians News Digest promotes the use of carve-out plans, noting that they allow doctors to “focus the majority of an employer’s contribution to a select group of employees, usually key or highly compensated employees.” In other words, a medical practice can save big bucks by providing one plan for its doctors, while offering many of its lower-paid employees a different, less valuable plan:

By including the key or highly-compensated employees in a defined benefit plan and the remaining employees in a more affordable 401(k) plan, you can keep your retirement plan in compliance with non-discrimination regulations, while keeping expenses at a minimum.

We have discussed the merits of a traditional pension over a 401(k) plan several times in the past. The truly insidious aspect of carve-outs is the fact that the higher-paid employees - the ones who are more likely to be able to save for retirement on their own - are given the better plan, while the lower-paid workers - the ones who can least afford to save for retirement - are stuck with an inferior one. 

Have these employers forgotten that the success of their business is not just a one-(wo)man show?  Or do they just not care?

Moreover, the IRS could probably limit somewhat the discriminatory impact of these plans by issuing new regulations on the technical rules that employers exploit to make carve-outs possible. 

For information on another type of carve-out plan, see our fact sheet on Q-SERPs.

Let’s start with the facts. First, two governmental agencies (the Departments of Labor and Treasury, to be exact) posted a “request for information” inviting comments from the public as to whether annuities should be used as an additional option for workers  who want to start drawing on the money they have saved in their 401(k) plans (see the comments the PRC submitted). Both agencies recognize that there is a growing interest among American workers to have a secure source of income throughout their retirement years. Sounds like a good idea, right?

Think again. Depending on whom you ask, this request for information is either a modest effort to promote a dialogue about expanding retirement plan options, or a sinister plot to seize everyone’s 401(k) account balances and use the money for a giant party at the White House. With $4.8 trillion invested in 401(k) plans it would be quite an awesome party, don’t you think?  But everyone can calm down.  The conspiracy theories are not true.

Let me repeat.  These conspiracy theories are not true.

Recently, several members of the U.S. House of Representatives sent a letter to the Treasury and Labor Departments warning against a takeover of our nation’s 401(k) plans. Treasury Secretary Tim Geithner’s response indicates that he is just as confused as we are as to how anyone came to believe their 401(k) plan was being threatened.

As we seek to improve the nation’s retirement programs, it is shocking that something as meager as a request for comments on payout options in 401(k) plans could be considered a radical threat. Only on Star Trek, where alternate realities are common, would such an assumption make sense.

Fortunately, the government agencies are living in reality. They know that our private retirement system is failing too many people, and they are asking for the public’s help in figuring out how to start to fix it. Let’s get to work.

Instead of looking at ways to reduce Social Security, the deficit commission should think of ways to strengthen it. Social Security isn’t the problem. 

The truth is that Social Security provides a bare-bones safety net by helping millions of older Americans have an economically stable and secure retirement. Look at the facts: The average Social Security recipient receives just over $14,000 per year - less than the federal minimum wage. I don’t know about you, but I think it would be pretty tough to live on only $14,000 a year. 

Remember that three-legged stool we keep telling you about? Well, Social Security is a vital part of it.  Without Social Security, in addition to guaranteed pensions and personal savings, how would Americans - both young and old - balance their budgets? (Let’s not forget that Social Security also provides benefits to women, people with disabilities, veterans, and children.)

At a time when Americans are already struggling to balance their budgets, the last thing the fiscal commission should do is make cuts to Social Security, the cornerstone of the nation’s retirement system.

What do you think? Chime in by leaving a comment below! 

This blog entry was written as part of the Wider Opportunities for Women 2010 blog day, “America’s Budget Matters (So Does Yours).” For more information, visit the web site: http://wowonline.org/budgetmatters.

The rules implement a provision in the Pension Protection Act of 2006 that requires 401(k) plans to allow participants to sell company stock that has been contributed as a “matching contribution.”

Congress enacted this provision to protect participants in 401(k) plans from losses similar to those that occurred when participants in Enron’s 401(k) plan were unable to sell their shares of company stock after the value of the company’s stock began to plummet. Because they could not sell their Enron stock, many participants in Enron’s 401(k) plan suffered enormous losses. (For more on the Enron situation read our blog entry, “A 401(k) lesson learned.”)

Under the new rules, participants who have worked for a company for at least three years will now be able to sell company stock at least every three months. The rules also require 401(k) plans to have at least three alternate investment options. The new I.R.S. rules took effect on May 19, 2010 and apply to plan years that begin on or after January 1, 2011.

In addition, our friends at Wider Opportunities for Women will be holding their second annual blog day on May 26^th with a theme of “America’s Budget Matters (So Does Yours).” The blog event will take place on the same day as the second meeting of the so-called Fiscal Commission, which is convening to discuss ways to balance the nation’s budget, including making harmful cuts to Social Security. Learn more about the Wider Opportunities for Women blog day by watching their videos below:

Just as we did last year, the Pension Rights Center is co-sponsoring the May 26^th Wider Opportunities for Women blog day, and we invite our readers to show their support by writing a blog entry on the topic or commenting on one.  If you write a blog entry, let us know so we can link to it.

The Pension Rights Center recognizes the important role that pensions play in helping Americans “age strong” and “live long.” Without pensions to supplement Social Security, retirees are at risk of having an economically insecure retirement. We are proud to celebrate Older Americans Month and to be a part of the Wider Opportunities for Women blog day.

We assembled under the banner of “Billionaires for Social INSecurity,” some wearing ball gowns and tuxedos to ask passersby if they would like to hand over their future Social Security checks - because that’s just what Peterson and his acolytes want you to do. 

The purpose of the protest, which was organized by Social Security Works, was to show the people outside the building exactly what was going on inside: wealthy people, detached from the financial realities facing most ordinary Americans, were scheming to cut Social Security benefits, a move that would hurt low- and moderate-income wage earners the most.  

Here are some of the tongue-in-cheek messages that the pretend billionaires conveyed to the lunchtime crowds.

- “We’re all in it together, sort of.”
- “It’s a crisis because we say so.”
- “Just because we busted the budget doesn’t mean we should pay for it.”
- “Feeling entitled to cut your entitlements.”

To see pictures and video of the event, visit our Facebook page.

Kudos to the folks at Social Security Works for putting this event together. To learn more about Social Security - and how it isn’t broken - check out the group’s series of blog entries about how Social Security works for women, people with disabilities, people of color, and veterans.

▪    The results of the Charles Schwab 2010 Families & Money Survey are in, and they show that the biggest worries of the “sandwich generation” - those who are likely to be supporting both children and a parent - include not being able to retire (29%), outliving their retirement money (22%) as well as not saving enough (22%), followed by the worry that their children won’t become financially independent (11%).  

 ▪    The Augsburg Fortress pension plan is in the news again. Recent articles in the Wall Street Journal article and the Pioneer Press highlight a lawsuit that workers and retirees have brought against the church. Learn about the gap in the law that can leave people in church plans - like the Augsburg Fortress workers and retirees - without much of their expected pensions.

▪    Rental car company Hertz has announced plans to buy its smaller rival, Dollar Thrifty Automotive. We hope that Hertz will show the same regard for the retirement security of its employees that Dollar Thrifty Automotive Group has. In January 2009, we praised Dollar Thrifty Automotive Group for reinstating its 401(k) match for its employees. Dollar Thrifty stated that the move was “the right thing to do.”

▪    The Washington Redskins team has announced that it is freezing its pension plan for non-player employees. According to the Washington Post, the Redskins are one of 15 teams in the National Football League that has chosen to freeze its pension plan. See our list of employers that have made changes to or frozen their pension plans.

▪    The Center for Retirement Research at Boston College has released the Social Security Claiming Guide, which “sorts through all the options, spells out how much you can get, and answers frequently asked questions - all in a clear, easy-to-read, and colorful format.” Check it out here.