Speech by Karen Friedman at Gettysburg College on “Re-Defined Benefits: The Past, Present, and Future of Defined Benefit Pensions in the United States” (April 23, 2015)

Speech by Karen Friedman at Gettysburg College on “Re-Defined Benefits: The Past, Present, and Future of Defined Benefit Pensions in the United States” (April 23, 2015)


Karen Friedman participated in a Finance Symposium, hosted by the Economics Department at Gettysburg College. The topic for the symposium was “Re-Defined Benefits: The Past, Present, and Future of Defined Benefit Pensions in the United States.” Below are her remarks. You can watch the entire symposium on the Economics Department’s Facebook page.

Hello, I’m Karen Friedman, the executive vice president and policy director of the Pension Rights Center. We are a national consumer organization that has been around since 1976, working to promote and improve retirement security for American workers and their families. 

  • We work to close gaps in the law which have prevented folks from getting pensions;
  • We provide hands-on legal assistance to individuals to help them enforce their rights; 
  • We work toward visionary polices for the future.

I’m glad to be here, and I want to thank Brendan Cushing-Daniels for inviting me to be part of this panel.

Already, you’ve heard about the importance of pensions and heard a lot of information about traditional pension plans, 401(k) plans, and hybrid plans in both the corporate and public sectors. I know some of this can be head-spinning.

So, I’d imagine that some of you may be thinking, “Geez, I’m in college. This interesting, but retirement isn’t really my thing. This issue feels far off. What’s it got to me with me?” 

And I’m sure some of you may wish that, right about now, you were watching a movie like Furious Seven, but I hope, after listening to this panel, you’ll walk out of here – maybe not furious – but certainly much more excited about these issues. 

So, to that end, ladies and gentleman, I’m going to give you Karen Friedman’s Gettysburg Address on pension issues. 

Two score and seven years from now, every person in this room will either be retired or nearing retirement age, so you need to start thinking about these issues now. 

And, believe me, that time will go really fast. It feels like just yesterday that I was in a lecture room not too different from this one at Georgetown University, where I went to school.  

To paraphrase the words of Abe Lincoln, “We are now engaged in a great civil debate, testing whether this great nation is going to deliver on promises and provide adequate retirement income to those who earned it, or whether we’re going to throw up our hands and say, ‘No, we don’t have to live up to pension promises.’ 

We can simply say, “Everything is too expensive and, heck, let people figure out how to save for themselves.”

The truth is, this debate isn’t just about retirement. It’s about core values. What kind of country do we want to be? And what kind of country do we want to become? Do we have a society where we’re all in this together, with collective approaches that provide secure income efficiently? Or are we simply abandoning plans that provide secure and adequate income in favor of do-it-yourself savings plans?

This is an issue that affects you, your parents, grandparents, and the community at large, but I’ll get to that point in more detail a little bit later.

So here’s what you’ve heard so far: 

  • Representative Tallman talked about why the Pennsylvania plan is underfunded and his alternatives; 
  • Diane talked about why traditional defined-benefit plans are the best plans and do work well;
  • And Michael talked about the important insurance protections provided by the PBGC to back-up bankrupt corporate pension plans and current challenges.

I’m going to add to this debate by talking about the importance of protecting Social Security and the good pension plans that exist – and discuss the need to create a system for Retirement Security for All. 

Let me start with the big picture.  

There’s been a lot of talk by policymakers about the “budget deficit” facing this country, but I’m going to tell you about another deficit that should also worry policymakers – and you. It’s the Retirement Income Deficit, which now totals $7.7 trillion

The RID, calculated by the Center for Retirement Research at Boston College, is the gap between what people have saved as of today and what they should already have saved to meet a basic standard of living at retirement. $7.7 trillion is a big number

And this number would be even bigger if Social Security is cut or if state, private, and municipal pensions are slashed.

Diane’s group, NIRS, using different methodology, states that the retirement savings deficit in this country is somewhere is between $6.8 and $14.0 trillion.

No matter how you calculate this retirement savings deficit, it’s enormously big, and we need to address it. And, I hate to be the bearer of bad news, but, unless we fix the problem today, it’s your generation that is going to have it even worse.

There are many reasons for this growing retirement income crisis, which you heard from the other panelists: 

  • Only about 50 percent of workers and retirees in the private workforce have pensions or savings to supplement Social Security.
  • More and more companies have abandoned traditional pension plans for 401(k)s.
  • And 401(k)s just aren’t cutting it. Half of all households with these individual account plans have only about $59,000 saved in their accounts. For people approaching retirement, it’s only about $100,000. This may sound like a lot of money, but it’s not when you stretch that amount over a number of years.

However, it’s easy to look at the numbers and statistics and forget about the people behind the numbers. That’s why the Center has a story bank on our website documenting how the RID affects them personally. 

We have heard from folks like Shareen Miller, a personal health-care assistant in Virginia who is making $12 an hour without health care, pensions, or vacation. She and her husband have about $100,000 saved in a 401(k) account, and she worries that the entire balance could be wiped out by one health crisis.

Or David Muse, a sound technician who puts it bluntly, “I will be forced to work until I either fall apart, my health totally crumbles, or I die. For me there is no retirement.”

Maybe you’ve heard this from your own parents or grandparents?

This is why we need a good pension system, so that people can retire, so they don’t have to work the rest of their lives, and so that they can open up jobs for you! 

As you heard from Diane, national opinion polls reflect America’s mounting anxiety about retirement. Diane told you about NIRS’s polls. I am adding a few others to the mix. 

  • A Gallup poll shows that more Americans are worried about not having enough money for retirement than they are about paying for health care, paying a mortgage, or paying for their kid’s education.
  • A poll by Allianz Life Insurance showed that baby boomers fear running out of money in retirement more than death.  

So given all this, policymakers should be doing all they can to strengthen pensions and retirement, right? Sadly, we at the Pension Rights Center are seeing an assault on retirement income security in ways that we have never seen in our 39 years of existence. 

There is a persistent campaign to undermine Social Security, the nation’s most successful social insurance program.

You can’t really talk about pensions without talking about Social Security, which has done an unparalleled job of providing a basic foundation of retirement income for virtually all retirees and widows. Social Security, however, only averages about $15,000 a year for a typical retiree, so pensions and savings are needed on top of it to lead to income adequacy.

I’m sure many of you have heard that Social Security is going broke and that’s just not true. I’ll be happy to talk to you about that in the Q&A if you’re interested. 

You heard about the controversy over state plans from Congressman Tallman and Diane, so I’m not going to talk about that today, although I am happy to engage in the Q&A.

Finally, there are ongoing attacks on private-sector pension plans. Over the past decade, more and more companies have found ways of breaking promises to workers and retirees, by dropping good guaranteed pension plans, cutting benefits, freezing plans, and replacing them with 401(k)s.

Where defined-benefit plans are guaranteed and pay out benefits for life, 401(k)s put the risks and responsibilities onto employees, who have to save on their own, invest on their own, and make the money last. While they work for some, 401(k)s fail for most.

As bad as these trends have been, at least retirees and workers in company and union pension plans could depend on one thing: while companies could change the plan for the future, the benefits earned could not be taken away.

Until now. 

We were appalled when, in December, Congress passed a law that will allow for the already-earned pensions of retirees to be cut in certain underfunded union-negotiated plans, called multiemployer plans. 

At the tail end of 2014, with only hours to go before Congress adjourned, a bill called the Multiemployer Pension Reform Act of 2014 was snuck into the yeare-end, must-pass spending bill. It allows for those who run pension plans to balance their books on the backs of retirees. The bill – which passed without hearings or public debate – is a radical departure from current federal private pension law, which gives pensioners the strongest protections.

In fact, the law states clearly that retiree benefits can never be cut back, unless their pension plan completely runs out of money. Then Michael’s agency, the PBGC, steps in and assists in paying those benefits.

But this new law overturns 40 years of law by allowing retiree benefits to be cut now, by as much as 60 percent, years before the plan is projected to run out of money. The bill hurts hundreds of thousands of retired truckdrivers, pipefitters, construction workers, and food-service workers. These are men and women who toiled for years, giving up wages while working so that their employers could put money into the pension fund on their behalf – and they were promised they could count on this money. 

I want to stress this point: Pensions are NOT freebies. They are earned. Every teacher in state plans and every worker in a company or union pension plan gives up wages – either explicitly or implicitly – so their employer can put money into the pension plan so that they will get a pension later on.

Yet folks who worked hard and did everything right are now finding the rules changed on them mid-stream. Retirees who are living on fixed income and have to rely on this income are suddenly told, “Sorry, Charlie, the pension you thought you can count on? We’ve changed our minds.”

James S. wrote on our story bank, “If my pension is cut in half, I will have to go bankrupt. I don’t know how I’ll survive.” His story is one of thousands of heart-breaking ones. 

This is unjust and unconscionable, and it affects not just workers and retirees but ultimately it affects all of us.

Which gets me back to one of my first points: This is an issue of economics and of values. If policymakers allow cutbacks of retiree pensions, which undermine the most the most sacred principle of pension law, what does this bode for America?

Do we as a country value promises made to people, especially our elderly and our most vulnerable? Or have we become a country that obliterates promises and has no regard for workers and retirees? 

We at the Pension Rights Center believe that keeping promises to people in public and private plans is fundamental to answering these questions. And, we still think that America, as the richest country in the world, can and must keep our promises.

These issues are all tied together. When Congress passed this new law that cuts retirees’ pensions in multiemployer pension plans, one legislator said, “Thanks for doing this. It gives us an excuse to cut Social Security.” 

I read a report written by the hedge fund BlackRock, in which they say point-blank that the new Multiemployer Pension Reform Act of 2014 may lead to what they euphemistically call other “reform” in corporate pension plans, and in state and local plans.

The end game: retirees, who once got the strongest protections in society, are the new scapegoat for all budgetary problems, and they’re on the chopping block everywhere. Is that the America we want?

I don’t think so. Let’s remember that pensions don’t just help individuals, they help the economy too. According to NIRS, the traditional defined-benefit system distributes $477 billion annually and adds $943 billion in economic stimulus to the nation each year. So pensions are good for individuals and for the economy. And for families.

According to Generations United, almost 8 million children live in what they call “grandfamilies” – households headed by grandparents and other relatives. As all too many families are struggling to keep jobs, to pay for their kids’ education, grandparents often help out with expenses. 

I want to stress here we cannot let this become a fight between the young and the old, which these battles in pensions are increasingly becoming. Pensions should not be cut to pay for education. And retirees and workers should not penalized because plans become underfunded.

We live in a civilized society where we need to take care of the young and the old. We need to fund education AND we need to keep pension plans that are working. It shouldn’t be us or them.

Ultimately we need to have a larger movement for Retirement Security for All – today’s and future retirees (meaning all of you). Our principles need to be:

  • Protect the promises made to people in multiemployer plans and state and municipal pension plans.
  • Protect and strengthen Social Security. You should all read Nancy Altman’s book, Social Security Works!: Why Social Security Isn’t Going Broke and How Expanding It Will Help Us All.
  • For those who are not covered by a pension plan, create new system of universal, secure, and adequate pension plans on top of Social Security so everyone has secure income. This can be funded by rejiggering some of the enormous tax breaks that now fuel the pension and 401(k) system to the tune of $80 billion a year.

So you’ve heard a lot from us. I’m interested in hearing what you think to secure your future. Thank you for inviting me. I am honored to be speaking to you all this morning.

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