History, Politics and Economics
Edited by Joëlle Leclaire, Tae-Hee Jo and Jane Knodell
Chapter 2: Public Policy to Support Retirement: An Alternative to Financialization
Yeva Nersisyan and L. Randall Wray Pension funds have suffered big losses because of this crisis. Private pensions funding for defined benefit plans has dropped from 109 percent funded in 2007 to 79 percent funded in 2008, meaning that the value of accumulated assets falls short of meeting promised payouts by over a quarter, amounting to a $400 billion shortfall. Public pensions provided by state and local governments have a shortfall estimated to run as high as $2 trillion. On any reasonable accounting standard, the Pension Benefit Guarantee Corporation (PBGC) that insures pensions is troubled because its reserves will be wiped out by the failure of just a couple of large firms on ‘legacy’ pensions. There has been a long-term trend to convert defined benefit plans to defined contribution plans – which means that workers and retirees take all the risks. It is likely that the PBGC, itself, will need a government bailout, and that retirees will face a more difficult future. A BRIEF HISTORY AND ASSESSMENT OF CURRENT PROBLEMS It is important to understand how we got into this predicament. During World War II government wanted to hold down wages to prevent inflation, given that much of the nation’s productive activity was oriented toward the war. Unions and employers negotiated postponed payment in the form of pensions – which pleased all three parties: big firms, big government and big unions. Much of the promised pensions was unfunded, or met by stock in the firm. This meant that pensions could be paid...
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