Reuters Money

Wisconsin’s Scott Walker and other Republican governors are counting on taxpayer support in their battles to cut state workers’ bargaining rights, pay and pensions. But public opinion favors the unions, because government workers aren’t the only ones worried about economic security these days — especially where retirement and pensions are concerned.

A national poll by Mathew Greenwald & Associates to be released next week shows Americans are in a state of near panic about retirement security. The research was commissioned by the National Institute on Retirement Security (NIRS), and covered a representative sample of all age groups. I see plenty of foreboding retirement sentiment surveys, but the NIRS findings are especially grim, and suggest that the financial meltdown and Great Recession simply have beaten expectations straight into the ground.

In short, most Americans now equate retirement security with mere survival:

Generally, Americans consider a secure retirement simply surviving or living comfortably (34 percent), paying their bills (17 percent), maintaining their pre-retirement lifestyle (11 percent), and paying healthcare and health insurance costs (8 percent). Only 11 percent expect retirement to include leisure, travel, restaurants, and/or hobbies.

Just as striking, the poll shows that Americans finally understand that the massive shift out of defined benefit (DB) pensions — the kind workers in Wisconsin are fighting to defend — are a big part of our retirement security problem.

DB pensions are more inclusive — all employees are automatically enrolled. Efficiencies stemming from pooled contributions and investments, and lower management fees, make them about 46 percent more efficient in delivering a desired benefit outcome, NIRS research shows. DB plans also are “ageless” in that there’s no need to adjust portfolio allocations to match an individual’s retirement needs. That allows plans to keep their portfolios balanced for maximum return.

Nearly nine out of 10 poll respondents said the retirement system is “under stress and needs reform,” and nearly three-quarters say stock market volatility makes it impossible to predict how much money they will have at retirement.

Two additional Greenwald survey findings explain just how far away from public sentiment Walker and other politicians have wandered when they claim we can’t afford pensions.

• Eighty-four percent said workers with pensions are more likely to have a secure retirement, and 77 percent believe the disappearance of pensions has made it harder to achieve the “American Dream.”
• Nearly 80 percent say leaders in Washington don’t understand how hard it is to prepare for retirement in this economy, and 80 percent say Washington leaders need to give a higher priority to improving retirement security.

Planning experts like to talk about the three-legged stool that supports retirement security. The legs of the stool are Social Security, individual retirement savings and a pension. But all three legs look wobbly.

The value of Social Security benefits already has been reduced by the higher retirement age enacted in 1983 reforms, and by rising Medicare Part B premiums, which are deducted from Social Security benefits. Social Security’s value could fall further if the current misbegotten reform efforts push the retirement age higher still.

Meanwhile, individual retirement savings have fallen far short of goals, and defined benefit pensions have evaporated in the private sector as more employers shift to defined contribution programs, mainly 401(k) plans.

So, the public understands what’s at stake in the battles with public sector unions in states like Wisconsin and Ohio, and doesn’t seem inclined to endorse a state-by-state race to the bottom. “You can go for pension envy and hope that gets you what you need or you can say we have a problem and that we need to lift everyone up,” says Diane Oakley, executive director of NIRS. “If we go to the least common denominator we won’t have the retirement my parents had, and that my grandparents didn’t have.”

What of the claims that DB pensions aren’t affordable?

While a handful of states have badly underfunded plans due to political failure to keep up with contributions, in most cases, the underfunding is cyclical (The Wisconsin Retirement System actually is 100 percent funded). Elizabeth McNichol, a senior fellow at the Center on Budget Planning and Priorities (CBPP) who specializes in state fiscal issues, argues that before the last two recessions, “state and local pensions were, in the aggregate, funded at 100 percent of future liabilities.”

Economist Dean Baker of the Center for Economic and Policy Research ran numbers to illustrate how the 2008 financial crisis and ensuing bear market impacted pensions assets, concluding that “if pensions had continued to earn on average a 4.5 percent nominal rate of return since the end of 2007, state and local pension fund assets would have been $857 billion higher at the end of the third quarter of 2010.”

Here’s Baker’s chart illustrating the two scenarios:

Baker also chalks up $77 billion in skipped government contributions to the housing bubble’s collapse. “Adding this to the $857 billion figure above results in an additional $934 billion in pension funds, a figure far higher than most estimates of the size of state and local government shortfalls,” he writes.

Meanwhile, a growing number of smart policy people are working on creative ideas for reviving defined benefit pensions in the private sector. More on that in my next post.

Photo: NIRS Executive Director Diane Oakley in an undated handout. REUTERS/Handout