Robert Shively, 68, worked in a chemical plant for 36 years, but that didn't earn him an easy retirement.
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The solution: a new type of insurance. Retirement savings, it turns out, are exactly the type of asset we need insurance for. We need insurance to protect against risks we can't predict (when the market collapses) and can't afford to recover from on our own. "People tend to meld savings and insurance in their mind, but they are not substitutes," says Nancy Altman, a former Harvard professor and the author of The Battle for Social Security. "It's fine to have a savings plan as a supplement but not as the main retirement protection for everyone." She says the best way to guarantee a replacement for people's wages in retirement is by pooling risk, and the way to do that is through insurance.
Altman is not alone. Teresa Ghilarducci, an economics professor at the New School, has proposed a plan in which the government would divert 5% of everyone's wages. In return, you would be guaranteed in retirement a check for 26% of your final salary every year until you died. Altman would also like to expand Social Security to pay an additional 20% of workers' final pay. It's unlikely Congress would go for that at the moment.
But guaranteed accounts don't have to be run by the government. The ERISA Industry Committee (ERIC), a group that represents the nation's largest employers, has proposed a system of exchanges that would allow individuals the ability to buy a guaranteed retirement account on their own. Some government regulation would be needed, but it would be a private plan.
What the ERIC plan and others like it are essentially proposing is a form of retirement insurance. So instead of putting 6% of your salary into a 401(k) or some other investment account, each pay period you would send 6% of your check to a retirement-insurance provider. The policy would work similarly to a traditional pension in that it would provide a guaranteed monthly check equal to about a quarter of your final pay, from when you quit working until you die. Some employers might even be willing to pay the annual premium as a perk. If not, employees would pay for it much as they currently fund their own 401(k)s. But the policy would be portable. Contribute for 30 years and you would be guaranteed income in retirement, no matter how many employers you worked for. Combine your retirement-insurance check with the money you get from Social Security, which can equal as much as 50% of final pay, and presto: you have something approaching retirement security.
Would it be feasible, politically or otherwise, to get people to dispense with their 401(k)s? Corporations, for one, are not the least bit interested in taking on pensions again — the cost would be enormous, and the expense makes them less competitive globally. "There are people in the Obama Administration who are supportive of some kind of guaranteed system," says Dean Baker of the Center for Economic and Policy Research. "People should not have to shoulder the risk of a bad turn in the market."
Nonetheless, a government-run system is not in the cards. "I think there is broad political support for the government administering some sort of retirement plan," says Christian Weller, a senior fellow at the liberal-leaning Center for American Progress. "But even if health-care reform is passed, the debate over the public option has made a similar solution for retirement less likely."
But many policy experts say some type of change to our retirement-savings system is coming. First of all, given the market carnage, there is some backing for the idea — not to mention anger and disappointment among retirees who can't really retire. Recent opinion polls show that people would be willing to give up the flexibility of a 401(k) for a guaranteed return. What's more, the fact that ERIC supports a guaranteed plan is encouraging. "Whether the 401(k) is a perfect plan or even the right plan is something that is being questioned in Congress," says Democratic Representative George Miller of California, chairman of the House Education and Labor Committee. "When you have seen the market's ability to create bubbles, you've got to ask whether the people trying to save for retirement should have to ride that risk."
Back at the golf course, Shively is not the only former Occidental employee toiling away in his retirement. There are three other former Oxy Pete workers among the staff. All would be better off today — and probably playing the course as opposed to working it — had Occidental stuck to its pension system. Still, Shively says he is not mad at his former employer. And so far, he hasn't found working in retirement to be too bad. Let's hope we all think the same.
— With reporting by Christopher Maag / Niagara Falls