Looking forward to a peaceful and secure retirement? Don’t bet on it. As we celebrate 401(k) Day on September 6 and the seventieth anniversary of Social Security on August 14, it’s a good time to ask what the future holds for the more than 70 million baby boomers – twenty-five percent of the U.S. population — planning to hang up their work clothes in the next decade.
Let’s look at some cold, hard facts. People are living longer, which means they need even more in the bank to pay bills once they quit working. Studies consistently show that most people are saving very little and are not financially prepared to retire any time soon. Social Security trustees project costs to exceed tax revenues as early as 2017 and are urging reform. This is particularly compelling now that only three workers pay taxes into the system to support each existing beneficiary, compared to the original sixteen persons at its inception.
The U.S. Government Accountability Office earlier this summer released a study citing the largest ever deficit of $23.3 billion for the Pension Benefit Guaranty Corporation, a single-employer insurer that protects the retirement incomes of more than 40 million American workers in excess of 30,000 defined benefit pension plans. Its executive director, Bradley Belt, stated that “financially troubled companies have shortchanged their pension promises by nearly $100 billion, putting workers, responsible companies and taxpayers at risk.” In July, Standard & Poor’s reported that defined benefit plans for 364 of the S&P 500 Index member companies remain under-funded by $165 billion. Public pension plans are no better off. National Association of State Retirement Administrators statistics indicate a $300 billion aggregate pension shortfall for the largest state and city plans.
How many more indicators do we need before acknowledging a savings and pension crisis? It’s bad and it’s getting worse. Anemic investment returns, higher fuel prices that dampen corporate profits and market uncertainty don’t help. Like the Titanic, our retirement systems – public and private — are large and complex. By the time we see the iceberg, it will be too late to change course and the inevitable is a financial catastrophe, putting millions in harm’s way.
Whether and how fast change occurs will largely depend on the three million plus individuals in this country classified as “fiduciary persons” and legal caretakers of more than $7 trillion in pension assets. Navigating a maze of regulations, setting investment policy and keeping costs down while trying to attract and keep productive workers are some of their many challenges. Recognizing the vital role they play, the U.S. Department of Labor launched “Getting It Right,” a series of one-day seminars for small company fiduciaries that cover must-know basics. Beyond that, fiduciaries must look elsewhere for help to ensure that a plan can pass muster with IRS statutes (in order to maintain tax-exempt status), fully comply with the Sarbanes-Oxley Act of 2002 (to avoid criminal penalties), and properly identify, measure and manage operational and investment risks (to have sufficient funds to pay beneficiaries).
The state of fiduciary leadership has not gone unnoticed. Pension litigation is on the rise, liability underwriters are charging higher fees in anticipation of increased claims and regulators and industry associations are evaluating the status quo.
We need a coordinated national debate that involves fiduciaries from both the private and public sectors, along with other interested parties – governance watchdogs, executives, attorneys, regulators, accountants, employees, union leaders, taxpayers, and investors. Working in isolation is ill-advised. The two worlds are inextricably linked. Private plan benefits are frequently computed as a function of projected Social Security payouts. Taxpayers struggle to save for themselves while recognizing they are on the hook for state and city pension deficits. Companies are asking whether they should terminate existing plans in anticipation of federal regulation that will increase costs, putting even more pressure on Social Security.
The time to act is now. Until this happens, we may celebrate retirement milestones while seeing our own dreams postponed for a very long time because we can’t afford to stop working. ;
;
(smm@bvallc.com)
BVA, LLC
4 Daniels Farm Road, No. 377
Trumbull, CT ; ; 06611
Phone : 203-261-5519
Fax : 203-261-5520 ;
All of the above text is a press release provided by the quoted organization. globalagingtimes.com accepts no responsibility for their accuracy.
