March 15, 2013
By Thomas J. Mackell, Jr., Ed. D. President Association of Benefit Administrators
(Delivered before the Annual Educational Conference of TEXPERS, Austin, TX, March 5, 2013)
Before I take you through the landscape of our future retirement scenario, let's look for a moment at the rear view mirror at the past decade. This is the period that I would characterize as "The Lost Decade." A decade where predatory capitalism wreaked its havoc on the American people.
The median family is in the worse shape than it was since the late 1990s.
We are risking the creation of a new underclass.
We must sustain democracy by keeping America free from social and economic collapse because that is where we could be headed.
In 2013, some 15+% of student loans have defaulted.
50 million Americans are in poverty and 20 million of those are in extreme poverty.
48 million are on food stamps.
The jobless are much less visible today than they were during the Great Depression because they are shored-up by government checks, family support, unemployment checks, Social Security disability checks and food stamps.
The U.S.–the richest country in the world–has the third highest poverty rate out of the 30 leading industrial nations.
The broadest measure of unemployment is some 14.5%–way above the headline number of 7.9%.
The labor force participation has dropped to the lowest level since 1981.
Job-seekers are only one-third as likely to find work as they were five years ago.
Corporate America has billions in cash in their coffers but is reluctant to commit to hire and put money into expansion.
Real wage growth has stagnated for 30 years.
Government, at the national level, is in free-fall and incapable of working together to initiate a serious jobs development program.
Everyone knows that a good paying job is the most important family program, the most important economic program and the most important national program that America could have.
The CEO and Chairman of the Gallup organization wrote a book that appeared last year entitled: "The Coming Jobs War." In it he recited that amongst all of the world leaders, the one thing that they all agree on is that everyone of their citizens should have a good paying job.
The uprisings in the Middle East, Greece, Spain, Portugal, Italy and Latin American are all about the young peoples' concerns about their economic futures.
We are doing our children and our grand children a disservice.
Coupled with all that I have just recited, let's look forward at the impending retirement landscape.
Large and growing numbers of workers are tapping retirement accounts for non- retirement needs.
That number is estimated to be some $75 Billion per year, via withdrawals and loans.
With Social Security and Medicare under the gun, these withdrawals are even more ominous.
In 2013, only one in four workers has a pension plan.
Only 43% of 401(k) participants in their 50s have account balances greater than $100,000.
$97,000 is the median mortgage debt among families ages 55 to 64, up from just $34,000 in 1989.
47% of Americans say they aren't confident about having enough money to live comfortably in retirement.
A recent PEW study found that 41% of adults between the ages 25 and 29 are now living or have lived recently with their parents.
Overall, 50 million Americans are in multigenerational households, a 10% increase since 2007.
Older people are going broke:
-they have lost their jobs
-their home values have plummeted
-their nest eggs have been diluted by the financial crisis.
Everyday, 10,000 Baby Boomers turn age 65 and that will continue until 2030.
Many of them are much less likely of enjoying a secure retirement.
I have this horrible vision of elderly people living under bridges, along the highways and byways and railways of America somewhat akin to what this nation experienced during the Great Depression.
The Defined Benefit Plan is a relic in the private sector. In 1981, 80% of workers were covered by a DB plan; by 2011, that number had diminished to 18% and it shrinks with each passing year.
If the DB plan faces it demise in the public sector, what will the overall retirement landscape look like?
What will the quality of worker look like who will be our first responders or teachers? I look at these positions not just as jobs but, more importantly, as a "calling."
Trustees today are faced with a myriad of daunting challenges:
Concerns that center around the macroeconomic environment and their ability to meet target returns;
Improving returns requires more flexibility, taking more risk and/or different kinds of risk;
The risk management process is constantly evolving to keep pace;
Trustees are experiencing a growing appetite for exploring new asset allocation models;
How do you think the average individual can deal with these complex and challenging esoteric scenarios, especially when half the people in the U.S. do not know the difference between a stock and a bond, much less hedging strategies?
They cannot rely on an investment management consultant because they are on their own.
In my opinion, it is criminal to leave workers out there naked with only a defined contribution plan as their sole pension.
People accuse me of being depressing. On the contrary, I am an optimist and more importantly I am a realist. We have a challenge that must be addressed.
We cannot continue down this road for too long before the social, political and economic consequences smack us in the face.
Our political leaders have to be educated. Corporate leaders have to become re- engaged. What will happen to corporate profitability when people can no longer afford to buy the products and services that companies offer?
The American people are looking for authenticity and leadership.
In closing, let me say that each and everyone of you must become an agent of change and a strong advocate for your brothers and sisters to protect the DB system and, thus, other peoples' money.
What is needed today is a commitment to the transformation needed to ameliorate the misery of people. Where people are legitimately concerned with social justice, with the alleviation of misery and the fairer distribution of power among all of the people.
We owe this to our families, our fellow workers, our neighbors and our community.
Failure is not an option!
