Remarks by Karen Friedman at a CalPERS Town Hall Meeting on the Pension Crisis (August 16, 2012)

Remarks by Karen Friedman at a CalPERS Town Hall Meeting on the Pension Crisis (August 16, 2012)


It’s great to be here in Anaheim. Thank you very much to CalPERS for inviting me to speak at this town hall meeting on the pension crisis in America.

Before I start, I’d like survey the room. How many people here are retired? How many of you have good defined benefit plans? And how many of you, because you have defined benefit plans, feel more secure – that you can keep spending money in the economy?

I think the point is, if you have good pensions, you recognize, that – unlike people that don’t have good pensions or who have 401(k) plans and have to keep managing that money over your lifetime – you can keep spending money in the economy.

Thank you to Joe and Diane for laying out different problems. I am going to build a little more on what Diane said and then focus my remarks on how to solve the problems of the system – particularly to increase pensions and savings for private-sector workers. I’m going to talk about national solutions, but also talk about some of the state-based solutions for private-sector workers that are happening around the country.

We at the Pension Rights Center always say, “It’s not public pension plans that are the problem, and it’s not Social Security that’s the problem.” The real problem that we have to face in this country is that our private system of pensions and savings is crumbling, and we need “Retirement Security for All.” And that’s why I’m here today – to talk about this in a larger perspective.

Given that I’m in Anaheim, California, I decided to let Disneyland inspire some of my comments on retirement income policy.

In a Disney world view, it seems to me that we can either do the right thing and create our own Tomorrowland – a utopian future with policies that lead to a retirement system that is secure and adequate for all Americans. Or we can have Goofy and Dumbo policies that will lead us in the opposite direction.

From our perspective, the attacks on Social Security, the attacks on public plans, and the attacks on Medicare, coupled with efforts to undercut good pensions and savings plans, are all Dumbo policies.

So let’s be clear, we have to halt these assaults on retirement security.

The same people who want to destroy Medicare and Social Security – all programs with collective risk – also are working to undermine public and private pension plans, all in favor of a so-called “ownership society.”

Diane talked about anxiety, and I got an urgent call today from Mickey Mouse. He said in his high-pitched, squeaky voice, “Gosh, Karen, I’m usually optimistic, but, gee, I’m afraid Minnie and I don’t have a penny saved for retirement. No pension. No 401(k) plan. Please help us! Things are really, really bad. See you soon!”

(Sorry, I couldn’t resist.)

Anyway, I’m here to say that we can all come together, and we’re all here to talk about how we can create good retirement policies of Tomorrowland today, how we can have the right retirement policies in this country, so that we can make sure that there’s retirement security for all. I would say to you today, that this is not just fantasyland. This can be a reality.

On that note, enough of Disney.

As you heard from Diane, the private system of pensions and savings in this country is a mess. And I’m going to repeat a couple of key statistics that she cited.

  • About 50 percent of workers in the private sector have no pensions or savings to supplement Social Security.
  • Employers are increasingly dumping good old-fashioned guaranteed defined benefit plans.
  • 401(k) plans have been failing millions of workers. According to 2010 statistics, the median household balance of 401(k) accounts is about $45,000. For those closer to retirement, that figure is about $100,000. That is not a lot of money to make it through retirement.

So, while policymakers have been focusing on addressing the federal deficit, we believe they should focus on addressing another kind of deficit – what we call the Retirement Income Deficit.

The Retirement Income Deficit is the gap between what people have saved as of today, and what they already should have saved to meet their basic retirement needs.

According to the Center for Retirement Research at Boston College, the Retirement Income Deficit (which is based on the Center’s National Retirement Risk Index) is a whopping $6.6 trillion dollars.

That’s $6.6 trillion.

If legislators continue to try to cut good public pension plans and cut Social Security, this explosively large deficit will only get worse.

To halt the assault on retirement security and to address this massive Retirement Income Deficit, the Center joined with other progressive groups – including the AFL-CIO, the Service Employees International Union, the Economic Policy Institute, and 24 other organizations – to start a campaign that we call “Retirement USA.”  R-USA is pushing for a new pension system that is universal, secure, and adequate (hence, the “USA”), and that, in conjunction with Social Security, will provide people with sufficient income.

So, after studying systems in other countries and proposals and programs here in the United States, Retirement USA developed 12 principles for a new private retirement system. These principles borrow from the best parts of defined benefit plans and 401(k) savings plans, and include some additional features.

We have three overarching principles that we believe should guide the reshaping of our pension system for future generations of workers. These are:

  • Universal coverage: Every worker should be covered by a retirement plan. A new retirement system that supplements Social Security should include all workers unless they already are in plans that provide equally secure and adequate benefits.
  • Secure benefits: Retirement shouldn’t be a gamble. Workers should be able to count on a steady lifetime stream of retirement income to supplement Social Security.
  • Adequate income: Everyone should be able to have an adequate retirement income after a lifetime of work. We can discuss during the question and answer period what “adequacy” means, but, in a broad sense, the average worker should have sufficient income, along with Social Security, to maintain a reasonable standard of living in retirement.

Other principles include

  • Shared responsibility: Retirement should be the shared responsibility of employers, employees, and the government, and there should also be shared contributions. Employers and employees should be required to contribute, and the government should subsidize the contributions of lower-income workers.
  • Pooled assets: Contributions to the system should be pooled and professionally managed to minimize costs and financial risks.
  • Payouts only at retirement: No withdrawals or loans should be permitted before retirement, except for permanent disability.
  • Lifetime payouts: Benefits should be paid out over the lifetime of retirees and any surviving spouses, domestic partners, and former spouses.
  • Portable benefits.
  • Voluntary savings on top.
  • Efficient and transparent administration: The system should be administered by either a government agency or by private, non-profit institutions that are efficient, transparent, and governed by trustees that include employer, employee, and retiree representatives.
  • Effective oversight.

So can such proposals be developed and passed? Yes. There’s a list of the organizations that are supporting the Retirement USA principles, and we’re expecting to get more. We’re hoping that all of you will support us, so that together we can create a movement.

I want to switch metaphors from Disneyland to the Olympics.

We saw that, when Team USA worked together and supported each other, our athletes in swimming, soccer, gymnastics, beach volleyball, and basketball, all won the gold.

I believe that if we work together, following the principles we developed, we can also win the gold in working toward a secure and adequate pension system for the entire country. We are going to create a gold medal plan so that Americans with silver hair can retire with sufficient income.

I would argue that state and federal retirement systems already are a model for reform in most cases. And they meet most of our principles, which is why federal and state workers are probably the last bastion of workers who can be assured of retiring with adequate and guaranteed income.

The California plans for state workers already have their own principles: employer and employee contributions; guaranteed benefits paid out for life; pooled and professionally managed funds; and joint trusteeship.

We believe that the funding issues that are facing these plans, in many cases, are temporary and, even if they’re not temporary, they can be addressed. The problems that are affecting California plans are the same problems facing all pension plans right now:  interest rates are low and the stock market is not doing well. Many public plans are about as well-funded as corporate plans.

I wanted to speak to the issue of underfunding a little. Keep in mind that a lot of the underfunded plans today were overfunded in the 1980s and 1990s. At that time, no one was complaining about pension funding. For years in fact corporations didn’t even pay a dime into their plans. So we think that some of today’s underfunded plans could be the overfunded plans of tomorrow.

Retirement USA is trying to develop plans for the private sector that are as good as public plans. In this regard, California is leading the country in creating a model for pension reform for this state’s private-sector workers using the efficiencies of the state pension system.

As many of you know, Senator Kevin DeLeon’s Secure Choice Retirement Savings Trust Act recently passed the state senate.

The bill ensures that those private-sector workers who don’t have an employer plan will be enrolled automatically in a new retirement savings plan, unless they opt out.

Employees would generally contribute three percent of their wages, and the investments would be managed by CalPERS or possibly other money managers. Benefits would be modest, but it is an important step forward for the 7 million people in California who are not covered by a plan. Also, because this plan operates separately from the retirement systems that cover state employees, this type of plan won’t add to state budget deficits or to state plan obligations.

A recent poll by the National Conference on Public Employee Retirement Systems shows that a majority of the small businesses they surveyed support these types of state-facilitated retirement savings plans, because they off-load many of the administrative and investment responsibilities from employers to third-party institutions, and they promote efficiencies of scale.

We also think that this plan could promote business opportunities, particularly for money managers and investment firms, because a lot of the functions will be contracted out.

As Diane pointed out, when people have good pensions, they keep buying goods and services. In strictly economic terms, it might not necessarily create wealth, but what it does do is enable people to continue to spend money, even when times are bad, which is a good thing.

Other states are following in California’s footsteps. Massachusetts recently passed a plan in which the state retirement system administers a plan for employees of nonprofit organizations. Connecticut and New York City are also exploring similar plans.

With partisan gridlock in Washington, there’s an opportunity now for states to lead the way and become an incubator for new types of private-sector solutions that might then be emulated on a national level.

Senator Tom Harkin, who is chair of the Senate Health, Education, Labor and Pensions Committee, has developed a new proposal for reform that also meets many of the Retirement USA principles I laid out earlier.

His proposal is called USA Retirement Funds. It calls for a new system of privately-run pension plans for uncovered workers. It goes further than the DeLeon plan, because it requires employer and employee contributions, and there would be risk-sharing by all the plan participants.

Our principles, Harkin’s plan, and the California plan are sparking dialogue across the country on ways of increasing pension coverage for private-sector workers – dialogue that we want all of you to be involved in. None of these proposals may win the gold, but they are contenders for a medal.

We at the Pension Rights Center have also been working with business groups to come up with new risk-sharing models. Earlier this year we held a conference in Washington, D.C., with a law firm representing some of the largest corporations in America on ways of creating new pension plans that share risk. Even businesses are coming to us, saying, “We know that 401(k)s are not the answer. Can we do something that splits the difference between 401(k) plans and DB plans? DB plans put all of the risk on employers; 401(k) plans put all of the risk on individuals. Let’s come up with something better.”

One thing is sure: we should not be changing what is working. We know that the structure of public pension plans as well as traditional employer-paid pension plans are working. We should strengthen and fix these plans – not torpedo them.

I also want to re-emphasize a point made by Diane: Social Security should not be cut. If anything, it should be improved.

The fact is, Social Security already meets all of our principles, except for being adequate, and that’s because Social Security was always meant to be supplemented by a good pension system and savings. So you might say that an additional Retirement USA principle is we believe that Social Security has to be preserved and even increased to continue to provide a meaningful foundation of income for today’s and tomorrow’s retirees.

We also believe that, if there were the political will to do it, Social Security could be expanded to become a retirement solution for everyone.

But that isn’t about to happen any time soon. So our principles are meant to underlie any new system that, in conjunction with Social Security, would provide adequate income for everybody.

In closing, I’d like to say that there is a huge retirement income crisis in this country, particularly in the private sector, and we have to work together to solve it. During the question-and-answer session, I would like to not only answer your questions, but also get your ideas on how we can achieve “Retirement Security For All” so that Tomorrowland can be today. Let’s go for the gold!

Not sure where to start but have questions?

Contact us >

Sign up to receive updates from us:

Do you want to stay up to date on the latest retirement news and recent happenings at PRC?

Sign up to receive emails from us:

Click here >

Support the Pension Rights Center:

In today’s challenging pension environment, our work is more important than ever. Your contribution will help make it possible for the Center to continue its crucial role as a national consumer organization committed to protecting and promoting retirement security.

Donate >