As a young man in the prime of life, retirement is the last thing on my mind. As a historian, I am very skeptical that some cataclysm such as a world war, an economic meltdown, or environmental catastrophe won’t make my savings completely irrelevant by the time I hit retirement age. As a Christian, I see the politics of retirement as an urgent and serious problem. It is hard to mobilize people around retirement issues because those who are the hardest hit are usually the ones whose voices count the least in the public sphere. To my mind, that is precisely why something needs to be done. The Marxist in Jim Russell would probably be horrified to think that he has written a profoundly Christian book, but this man has done more than most to care for the elderly and to defend the cause of the widows of Connecticut. Russell frames Social Insecurity (2014) as an account of his own panic at discovering that he had far too little money to retire on. But the book also tells the story of how he organized his colleagues and union reps, kicking and screaming, into doing something about the problem. In the process, Russell explains how a functioning pension system was abandoned due to pressure from financial speculators on Wall Street and alarmist rhetoric from right-wing economists. He lays out the different options that most Americans have when it comes to retirement plans and indicates in no uncertain terms which ones are better than others.
Most of Social Insecurity is dedicated to what the blurb calls “the story of a massive and international retirement robbery—a substantial transfer of wealth from everyday workers to Wall Street financiers via tremendously costly hidden fees.” Russell begins by outlining the basic principles of social security in the US. Just as a whole society should be responsible for educating the young, so everyone should contribute to caring for the elderly. The ideal is far from the reality, however, and Russell points out that today “the proportion of income subject to Social Security taxation for those earning less than $100,000 a year is 79.6 percent; for those receiving more than $10 million, it is only 0.3 percent.” One metaphor for retirement planning that Russell returns to throughout the book is that of a three-legged stool. He writes, “the first leg was a national retirement plan; the second, a plan sponsored by the employer; and the third, personal savings.” What happened, he says, is that as part of Ronald Reagan’s reforms of the 1980s the majority of Americans saw their retirement plans shift from defined benefits plans, in which the employer or insurance company guaranteed a certain number of benefits upon retirement, to defined contribution plans, in which you put in as much money as you can and hope for the best. Similar things happened in Thatcher’s UK, and slightly later, in Australia.
One of the problems with defined contribution plans is that you never know how much money you are going to have when you actually retire. You put money in, but the financial gurus take their administrative fees at every stage of the process, including after you retire. Moreover, if your employer temporarily decides to stop paying into your plan in order to balance the company’s budget, you lose the interest that would have accrued and your employer does not suffer in the least. The value of your savings change over time and relying only on a standard 401(k) plan it is almost impossible for most people to retire on roughly 70% of their pre-retirement income (paid through an annuity). For a defined contribution plan to pay out at the same level as a defined benefit plan, most employers would have to pay 29% more in contributions just to cover all the extra administrative fees. Few are willing to do so. Russell discovered the disadvantages of his 401(k) plan quite some time ago, but was trapped. When his employer, Eastern Connecticut State University, decided to switch to defined contribution plans in the mid-1980s, he was convinced by the neo-liberal sales pitch and moved like everyone else. When he crunched the numbers thirty years later, he was not allowed to switch back. He told his colleagues and his union about his concerns, but because no-one actually knows anything about retirement plans everyone trusted their financial advisors, and no-one else cared.
For years, Russell was a lone voice crying in the wilderness. Then the 2008 financial crisis hit, no-one could afford to retire any more, and everyone panicked. Chapter 7 details the ups and downs of the movement that Russell assembled at his workplace to force the state of Connecticut to allow them to change plans. The AAUP (Russell’s union) was uninterested in taking up the cause and he had to force them to care. Then they discovered that the head of Connecticut’s Retirement Services Division was in the pay of the company administering their 401(k)’s – ING – which was why he had been blocking their movement since the beginning. To cut a long story short, by the end of the chapter Russell and his friends do win the right to change back to a traditional pension plan. As a result, Russell’s retirement income increased by $20,000 a year, which is no small sum.
This book’s message is clear – defined contribution plans such as 401(k)’s are not for everyone and you should not let your employer tell you otherwise. Changing pension plans might be hard, but it will change your life. Unlike many workplace disputes, this time management are suffering from the same swindle as other employees. So the only thing stopping effective change was ignorance. And to counteract ignorance, we have books.