Take a look at this useful set of pictures from the BLS on the not-very-healthful status of defined benefit (DB) private pension plans in America today (DB pensions provide guaranteed, periodic payments in retirement). A quick glance led me to believe that these data points should be a front-and-center defense against those who would cut deeply into Social Security and Medicare benefits.
In sum, as DB private pensions weaken, we need to strengthen public ones. The loss of DB private pensions—and their partial replacement by financial-market-dependent defined contribution plans—represents a shift in the locus of risk of retirement insecurity from employers to workers.
Simple economics dictates a role for government to absorb the risk as it can do so far more efficiently than individuals on their own. That means ensuring the viability of social insurance. That, in turn, is not an argument against “entitlement reform,” whatever that is. But it’s very much an argument that such reform must absorb the added risk in such a way as to protect vulnerable retirees as private pensions fade.
–The first figure shows the decline in coverage from different surveys by the Bureau over the years. Looking at the all-workers part of the figure, private coverage is down from 35% in the early 1990s to 18% in 2011 (10% of private workplaces offer DB pension, covering 18% of the private workforce).
–Among participants in DB plans that exist today in the private sector, 25% are in “frozen” plans, meaning new employees are not eligible, and, in some cases, the plans are no longer accruing benefits for active participants.
–Even in private industry, there’s a huge union advantage to DB pension receipt (see second figure). In the state and local sector, 78% of workers have such coverage. This has, of course, been a huge bone of contention in recent state politics—the union advantage in such coverage has served as a big motivator for union busting campaigns in Wisconsin and Ohio.
A quick word on this last point. I’ve had discussions about these trends, including the union difference, with high-level policy makers who argue for downward convergence. That is, they argue that we can’t defend public DB pensions when so many private workers have lost theirs. Why, I ask, shouldn’t we argue for upward convergence? Why accept that the public sector should go the way of the private?
The answer tends to reference globalization, as in we can’t compete with countries with lower pension standards than our own. I find this response deeply confusing. You don’t globalize to make your economy worse off. You do so to seek comparative advantage, otherwise you’re better off with autarky. And, in fact, while more international trade has of course had negative distributional consequences, it has arguably added to macroeconomic growth relative to a protectionist counterfactual.
So if we’re better off overall due to trade, why is globalization an explanation for why our workforce should expect less retirement security? And if it is, why should anybody in the bottom 80% support more globalization? Because it enriches multinationals and provides cheaper goods at Walmart? Sorry, but this logic is deeply screwed up.
If globalization means private industry can’t support DB pensions, than some of the benefits of globalization should be used, through the tax system, to strengthen and expand retirement security through social insurance.
Source: BLS, link in text.