See asterisks--Remarks to the National Association of State Retirement Administrators (NASPA)
Portable Public Pensions: The Inevitable Reform
August, 2005
Daniel Clifton
Executive Director, American Shareholders Association
Longer life expectancies and increased prosperity have led to a revolution in the way Americans now approach work and retirement. 100 years ago, life expectancies were 51.5 years for males and 58.3 for females. Today, males’ life expectancy is 80 years and females’ slightly more than 84 years. Furthermore, with lifestyle improvements and advances in medical technology, the average 65 year old is projected to increase his or her life expectancy by 2 years over the next 25 years.
A related factor shaping the debate over defined contribution and defined benefit plans is the aging of the baby boomers. Can taxpayers maintain additional payments due to people living longer while fewer workers are available to pay for retirees?
The retirement of the boomers will have an enormous impact of the nation’s economy and demographics. It’s been widely reported of the coming brain drain on federal and state government as the baby boomers get set to retire. These same baby boomers will be collecting pensions. At the same time, however, the current gap between assets and liabilities nationally will need to be corrected. If not, the natural strain on the pension system coupled with the financing gap will force a demand on the system to change. Taxpayers will not foot the bill for mismanagement.
Another factor applying pressure on the public pension system is the acceleration of the number of middle class families owning shares of stock. How will public employees respond when they are the only people left in America not sharing in America’s prosperity resulting from the stock market?
***This country has undergone one of the most fundamental demographic shifts in American history. In 1980, just 17 percent of America's richest families owned shares of stock. Today more than 50 percent of families own stock, 60 percent of adults, and 67 percent of voters. This has transformed America’s economic and political landscape.
In 1989, just 30 percent of a family’s financial assets were stocks; today, it’s 56 percent. Clearly, the stock market has become much more important to family balance sheets.
I can shout off statistics all day, but what does this really mean? Simply put, the four fold increase in the number of defined contribution participants in the private sector and the growing popularization of mutual funds has opened the doors to widespread investing of the American public. Specifically, the 401(k) plan has opened up new opportunities for middle class families to own stock. But workers have not just stopped at their employee plan. Surveys have consistently shown the work related retirement plans are just a first step towards investing. Seeing their funds accumulate, workers then start purchasing their own shares of stock and mutual funds for more immediate savings. Public employees have yet to share in this experience, unlike workers in the private sector. |
