It’s no secret to more astute investors and political progressives that the decades-long battle to eliminate pensions and replace them with 401(k) is all about who takes the most amount of financial risk and has the most power to influence decisions made by investment firms and corporations.
When a state or county converts its pension plan to a 401(k) under the guise that it is “underfunded,” the transition has two purposes: it shifts the financial risk to the workers over the decades they have to work before retirement. It also gets the pension fund managers and the pension board off the hook in terms of supervising that the investments are generating optimal return given their risk level and expenses.
This involves fiduciary responsibility, so when a pension fund becomes a 401(k), the fiduciary duty is reduced, plus the plan contributors have lost their control over what corporations they are investing in and influencing the behavior of errant corporations that engage in illegal, unethical or socially irresponsible behavior.
As this New York Times article by David Webber (@dhwebber1), a law professor at Boston University, shows, “since the Great Recession, 49 states have reformed pensions to make them more sustainable, increasing employee contributions and reducing benefits.”
Economic Voter Suppression
Worse, the demise of pension funds “should be understood, at least in part, as a campaign of economic voter suppression.”
He continues to say:
“We 401(k) holders are the world’s ideal source of capital. We let ourselves be charged high fees that we do not understand, we accept poor returns quarter after quarter, we never sue to enforce our rights, we never vote as shareholders and we never tell our investment managers how we think they ought to vote. We are beyond passive; we are supine.
“At bottom, the problem is structural. We are to our investees and investment managers what nonunionized, “right to work” workers are to their employers: alone and devoid of leverage to negotiate. That stands in sharp contrast to traditional pensions, which, like unions, are collective and centrally managed.”
Webber suggests that shareholder activism can correct the problem.
He is correct, but the demise of pension funds, and in turn financial security for older workers, is part of the neoliberal agenda that intends to keep workers financially insecure. When workers cannot confidently advance through their financial future, they become politically timid, conservative and fail to question what is put before them.
Reversing the demise of pensions and replacing it with a modicum of financial security is an uphill battle. The Republicans have been dismantling pensions, the fiduciary standard and replacing them with 401(k)s for workers who are still fighting for meager wage increases.
While they have become the new retirement benefit standard, 401(k)s have their own significant problems, including ones associated with high fees, lack of less expensive investing alternatives, lackluster fiduciary oversight, and the loss of any political inputs into the corporations you are investing in. (For more about high fees, see the book How 401(k) Fees Destroy Wealth and What Investors Can Do To Protect Themselves.)
A Progressive financial platform offers more and better alternatives. This would include the creation of more so-operative business structures, electing non-corporate Democrats, re-instating and expanding the Consumer Financial Protection Board, and forcing irresponsible state legislatures and the media to cover the pension underfunding issue at the local level.
This is a huge wish list, almost as hard as getting any form of gun control. It may be too much for average working people to take on as they struggle to make ends meet in a political and financial system which is tilted against them. But being aware of these financial retirement problems is the meager first step to making even the most modest changes.