Wednesday, Dec. 3
Posted 4 p.m. EST
Lately, the 401(k) plan has been under fire for failing miserably. Just a few months ago, the House Education and Labor Committee held hearings to discuss ways to improve Americans' retirement security. At the time, committee Chair Rep. George Miller, D-Calif., said, "For too many Americans, 401(k) plans have become little more than a high stakes crap shoot."
Traditional pension plans that offer monthly checks for life are considered a safer bet, but they're going the way of postage stamps. Those companies that still offer pensions seem to eventually shut them down, and when they do, who loses? The rank and file, according to a recent GAO study that Miller had commissioned.
The study examined the compensation of top executives at 10 companies over a five-year period prior to the closing of their troubled company pension plans. The title of the study says it all: "Sponsors of 10 underfunded plans paid executives approximately $350 million in compensation shortly before termination," -- that is, before termination of the pension plans, not of the executives.
Miller's reaction? "It is fundamentally wrong that executives were able to line their pockets with millions of dollars from bonuses, stock options and free joyrides on corporate jets, while watching their workers' retirement security slip into peril," he says in a press release on his Web site.
Read the study for yourself if you want to shriek, gnash your teeth or engage in other futile behaviors. Or you could spend your time doing something more constructive.
Start a revolutionJane White, founder of Retirement Solutions and author of "America, Welcome to the Poorhouse," says Americans are headed for a retirement crisis.
"It's time for a second American Revolution," she writes. She's not talking about a French-style uprising that involves holding senior executives hostage until worker demands are met. (You have to admire the French for their moxie, though.)
No, White calls for 401(k) reform that emulates a system used in another part of the world -- Down Under. In Australia, she points out, employers are required to contribute the equivalent of 9 percent of their workers' pay to their "superannuation" accounts (the Aussie retirement plan). And they're not allowed to suspend contributions, a practice widely adopted by American firms this year.
Jane White's "401(k) Security Act" calls for companies with 10 or more employees to contribute the same amount -- 9 percent of pay -- to their workers' retirement accounts. Employees who work in firms with fewer than 10 workers would enroll in a "Universal 401(k)" and get a government contribution.
The main problem with the retirement system, she says, is that no one is telling Americans how much they need to contribute each year to accumulate enough money for retirement. The final nest egg should be equivalent to 10 times your final salary, and to get there, you need to put in more than 5 percent a year. And you can't be expected to do it all yourself, she says.
Her recommendations for contributions are (in addition to the 9 percent employer contribution) 4 percent for 25-year-olds, 7 percent for 30-year-olds, 11.25 percent for 35-year-olds, 17.25 percent for 40-year-olds and 42 percent for 50-year-olds.
In her book, White also calls for other fixes, not only to the retirement system, but to things that get in the way of prosperity for Americans, things like bad mortgage loans, burdensome student loan debt and credit card debt. Her book offers numerous excellent solutions, not only those that could be implemented on a national scale, but many that consumers can put into action immediately to improve their personal finances.
But if you want to start a revolution, one that doesn't involve taking your boss hostage, send an e-mail to Miller as well as your congressman or congresswoman. Tell them to adopt Jane White's 401(k) Security Act if they really want to make a difference and help the American people retire with adequate funds.
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