You may have missed it – but it’s now online . Its messages were powerful – but its content is also proving to be somewhat controversial. Over the past week, we asked readers to check out the documentary online, and let us know what they thought.
Those who didn’t catch the special when it ran on TV were obviously at a disadvantage, and I heard from a number of readers this week who were having trouble blocking out the time to view the whole program – or who had trouble actually accessing the information online (you can find the link to the program on our site HERE ). Moreover, this being the week before the Memorial Day holiday, I know that a lot of readers are taking advantage of the upcoming long weekend. Now, all of that may be a rationalization for a relatively low survey response rate on a topic of some importance – and one that required “homework,” to boot.
In fairness, the responses we received were overwhelmingly supportive of the program – with more than two-thirds saying it either got the issues about retirement security “right” or “about right.” (split about evenly between those two choices). Roughly one in five said that FRONTLINE got the issue about half right/half wrong, generally right on the issue of the sorry state of worker savings, and wrong on the program’s failure to speak to where the responsibility lies (or in its suggestion that the problem lays with “evil” employers). Roughly 15% either said it got it “wrong,” or missed the boat entirely.
We got a wonderful assortment of articulate, impassioned, and thoughtful responses. Here’s a sampling:
“The Frontline documentary was the most compelling TV I’ve watched in quite a while. I give it a 99%. [The only missing element was the scope of current and future health-care costs on retirees…especially with employers ditching from these plans as well.”
“Was happy that they exposed the problems with 401k plans but, as an actuary, I go nuts every time I hear some shrill talk about how pension plans are grossly underfunded. With recent lackluster market performance and historically low interest rates, pension plans are EXPECTED to be significantly underfunded. Not all of the $400+ billion underfunding is due to evil corporate leaders ‘gaming’ the system (although some of it is) and not all of it needs to be fully funded today.”
“It laid out the issues surrounding this area and it did a good job of raising the red flag. However, I feel that too little was said about solutions, potential solutions, and the lack of will (or is it backbone) in Congress to address the issues.”
“I watched the program Tuesday night (even recorded it for posterity). I thought it was very good but, if anything, it was too optimistic.”
“I felt the article/news show was very lacking in content. It did not address reasons why Americans are not able to save enough for retirementâ€¦”
“I watched this last week and would say it is about right. The bashing of United was a little over the top but, overall, I think it is a great wake up call.”
“So much so, I plan on hosting a ‘lunch and learn’ for our employees, streaming this program.
Frontline did a good job of describing the trend of companies eliminating DB plans in favor of DC plans. They also did a good job of describing employees’ inadequacies at managing their own DC plan accounts. However, they did not describe the pressures on companies that are causing them to drop DB plans, and they did not show Congress’ failure to make it easy for companies to provide a DB benefit.”
“This is obviously skewed in the ‘Corporate Bad, Employee Good’ way, but what this really shows is the sense of entitlement that we are trying to break across all benefit plans. People think that everything should be done for them and they should have minimum responsibility in what happens.”
“My problem with reports such as this is that they neglect to emphasize it’s the responsibility of the employee to elect to participate, yet they bear none of the responsibility for the current state that they’re in regardless of the amount of resources employers dedicate towards education and matching programs.”
But this week’s Editor’s Choice goes to the reader who offered a stark real world perspective: “There is nothing more heartbreaking than doing an enrollment meeting, and a 55-year-old person comes up to you, proud as can be, to have $30,000 in their 401(k). People just have NO concept of what it’s like not to work and have that steady income flow.”
Thanks to everyone who participated in our survey! We’ll keep the balloting open for the next week, so if you have thoughts/responses to the documentary, the perspectives of PSCA or EBRI posted above, the reader comments to our survey, or my IMHO on the subject – or any/all of the above – please e-mail me firstname.lastname@example.org, and join the debate! All responses are confidential.
A. Absolutely right.
The Frontline documentary was the most compelling TV I've watched in quite a while. I give it a 99%. [The only missing element was the scope of current and future health care costs on retirees...especially with employers ditching from these plans as well.] I think that those who disagree cannot put themselves in the shoes of those struggling to meet current obligations and save for retirement. It is simply overwhelming for most Americans.
My answer is C, about half right and half wrong.
Frontline did a good job of describing the trend of companies eliminating DB plans in favor of DC plans. They also did a good job of describing employee's inadequacies at managing their own DC plan accounts. However, they did not describe the pressures on companies that are causing them to drop DB plans, and they did not show Congress's failure to make it easy for companies to provide a DB benefit. Frontline interviewed the head of the Nebraska Retirement System about the superiority of the DB over DC plans as an employee benefit, but they neglected to mention the costs that Nebraska taxpayers must bear for the DB plan compared to the DC plan. Also, Frontline completely missed another major the question of health insurance as a component of retirement benefits.
(f) Other - this is obviously skewed in the "Corporate Bad Employee Good" way, but what this really shows is the sense of entitlement that we are trying to break across all benefit plans. People think that everything should be done for them and they should have minimum responsibility in what happens. The person, who thinks that corporate America can just continue to pick up the tab for all these benefit programs (pension, medical, prescription drugs,) is not realistic. The employees need to shoulder part of the burden or the corporations will go under and then the employees will not only lose their benefits, they will lose their paychecks.
If the employee is not able to invest their money themselves, they have the ability to hire a financial planner to help them with it. Unless you are an OB-GYN or midwife, you would never consider delivering your own baby because you would be risking the baby's life - in the same regard, if you do not have the skill set to invest for retirement, you should hire a professional so you do not risk the life you were hoping to have for your family in your "golden years".
Other. With this issue competing with other primetime crises like bird flu, nuclear Iran, geological upheaval, and skyrocketing debt, it's little wonder many more Americans like myself would rather hear Simon Cowell, Paula Abdul and Randy Jackson comment about budding swooners than focus on the end of the world as we know it. Change the channel -- ignorance is bliss.
(c) About half right. My problem with reports such as this is that they neglect to emphasize it's the responsibility of the employee to elect to participate yet they bear none of the responsibility for the current state that their in regardless of the amount of resources employers dedicate towards education and matching programs.
It would have to be (b).
Was happy that they exposed the problems with 401k plans but, as an actuary, I go nuts every time I hear some shrill talk about how pension plans are grossly underfunded. With recent lackluster market performance and historically low interest rates, pension plans are EXPECTED to be significantly underfunded. Not all of the $400+ billion underfunding is due to evil corporate leaders "gaming" the system (although some of it is) and not all of it needs to be fully funded today.
I felt the article/news show was very lacking in content. It did not address reasons why Americans are not able to save enough for retirement. I lost one total retirement plan in the early 80's when the insurance company I worked for went belly up and at that time employees did not have any recourse for money recovery. A year later I had kids in college for the next 8 years which required some support. One child also had behavioral issues which required another large amount of money to pay for treatments. In the 90's and early 2000 I had good savings with my current company. Unfortunately they moved retirement money three times due to management change and each change was the wrong time of the market, creating additional loses. I am now seeing my kids and grandkids go through the same economic/social conditions I experienced. One special need grandchild and not buying the "extras" their friends are consuming are causing them to hold more than one job. Something I have done all of my life.
I have done employee meetings for retirement plans since 1984 and it amazes me a company will support a retirement plan meeting and then does little to help an employee from there. That helps including match and ethical behavior toward their employee's.
The article does little to address the many issues each employee has in trying to sock that extra away for their retirement. Unless you are making six figures plus, the lower income employee will have a difficult time in being able to save what they would like. There is a large need of how to put the needed 18%-20% away and have enough in an emergency fund where you don't have to dilute your savings or percentage. Economic conditions created by inept governments do little to help.
Through the above negative responses I still am planning to semi-retire next year at 63 and address the out living of my retirement funds every year. My friends say die early or inherit are their solutions.
My overall verdict on the Frontline material (on the website -- I did not see the TV show): They got some things right and some things wrong. Of course, they've tried to tackle a very difficult subject, and they should be commended for trying.
Just a Few of the Wrongs
The greatest error Frontline and many others make, something I'll come back to again, is to accept as a premise that a 401(k) plan is a retirement plan. You might say this is just a matter of semantics, which true. But it's also the point. The association of the words "401(k)" and "retirement" is one of largest financial frauds of all time.
One of the "basics of investing:" "Avoid keeping 401(k) money in a company's default investment scheme. It's usually a low-risk fund with a correspondingly low rate of return." That's a gross overgeneralization that could hurt many employees. Negligent? Clearly. In some cases a low-risk fund may make sense, but more important, a substantial number of employers offer more aggressive funds as default funds. PSCA's 47th Annual Survey of Profit Sharing and 401(k) Plans (admittedly loose and unscientific) lists the following percentages of plans using various default options for automatic deferrals: stable, 30.3%; money market, 19.7% [50% total low-risk]; 36.4% balanced, 36.4%; lifestyle, 9.1%; other 4.5%). A much better response: "Consider carefully whether to keep your money in your company's default investment fund. It might be right for you. It might not."
Advantages of 401(k) plans for companies? "Lower and more predictable costs, etc., etc." More predictable, "yes." Lower cost? A lie. There is absolutely nothing inherent in defined benefit plans that make them more expensive than defined contribution plans. The cost depends on the plan design. Obviously, Brooks Hamilton was misquoted (misquoting for effect is something the media excels at).
Major mistake workers make managing their 401(k) s: "401(k) investors aren't aware of the fees and costs charged by managers of 401(k) plans (usually mutual fund firms)." While this statement itself is literally true, to call it workers' mistake is, as the kids say today, "bogus." The more important truth is that most mutual funds, financial institutions (including insurance companies) and financial advisers do everything in their power to prevent even the more astute investors from learning the true costs of doing business with them.
"The most common way for corporations to shift responsibility for paying workers' pensions is through Chapter 11 bankruptcy. This allows a company to cancel its obligations, including its pension plans, and restructure and emerge to continue business." These sentences are so obviously and grossly misleading on their face that they do not merit any further response.
"More than 18,000 companies have underfunded their pensions." Without an explanation of the various ways and purposes for which funding status is determined this sentence is misleading at best.
David Wray says: "In the late '80s and early 90s . . . [t]here was an anticipation that we could teach every American worker to be an investment manger." Misleading, at best. In my opinion the "industry" simply thought they could make money selling investment education services they knew were inadequate. Some still do. Employees could be taught about sound investing, but at what cost in time and money? Should an employer take on investment education as a responsibility? Isn't that the job of our general educational system?
On Elizabeth Warren: I understand where she's coming from and she's got a right to her political opinions, of course. Just because she's a law professor doesn't mean she has to limit her comments to the law. In many respects I agree with her goals, her political opinions, as I understand them -- for example, doing right by the Middle American worker. However, she's going to have to be a lot more evenhanded about the current state of the law and how it's developed as it has if we're going to get anywhere. On the other hand, Frontline has printed only an "edited transcript" of their interview with her so there is no way to know for sure whether she's being fairly represented. I'd love to see the footnotes supporting her statements.
On David Wray: Sad that he doesn't know the early history of section 401(k). Or, maybe, Frontline just got it wrong.
The fact that the law favors employer stock as a qualified plan investment is a serious impediment to DC plans serving as retirement plans. If you want to give special tax breaks to plans that invest in employer stock (in excess of a nominal percentage), then fine. Just prohibit the word "retirement" from being used in connection with such plans. Recently I reviewed an ESOP document drafted by an attorney who advertises himself as an ESOP expert. The document includes the following language: "the purpose of the Plan is to invest in Company stock to increase the financial security of faithful employees and to provide retirement benefits for them." That's double deception: "financial security" and "retirement benefits" for a plan that's not diversified? Where to people come up with this sort of stuff?
Failure of general education. Every high school, public and private, should teach students how to manage their financial affairs, along with giving them the tools (e.g., simple math and analytical skills) necessary to know how to handle their own money and investments. I was going to add "wisely" at the end of that sentence, but that implies a value judgment I'd rather not have our schools make. This is not to say that financial education should not begin even earlier. Sure, just as in the case of other school subjects, some students will be aces and some will fail, but that shouldn't keep us from trying.
The financial services and consulting industry have led employers and employees down the 401(k)'s (and cash balance's) primrose path. I'm all for free enterprise and I'm against over-regulation, but if we're going to address the issue of retirement security, we've got to look at all the facts. Several of the commentators, John Bogel and Brooks Hamilton, point out the high costs of mutual funds, but don't come down hard enough on the financial services industry and the plan design and benefits consulting industry, many, if not most, of whom hide costs and conflicts. While some of the wrongdoing has been exposed, I see no evidence that the culture has changed.
As I said earlier, 401(k) plans are not retirement plans. At least not necessarily so. The vast majority are simply tax-deferred compensation plans. The amount of the tax-deferred compensation, the manner in which the funds are normally invested, and the ultimate purposes for which such compensation may be used is within the control of the participant. The participant may or may use the plan as a retirement savings vehicle. Nothing in the law or in the design of most 401(k) plans suggests the must be or are retirement plans. To call such plans retirement plans in common parlance and then to give employee designs that have little if anything to do with retirement savings per se is just plain wrong.
Wish I had time to say more.
(B) About right.
There is nothing more heartbreaking than doing an enrollment meeting, and a
55 year old person comes up to you, proud as can be, to have $30,000 in their 401(k). People just have NO concept of what it's like not to work and have that steady income flow.
I understand the gravity of the issue (I am employed because of it) however the "poor me" attitude wears thin after while. It's been years (10 at least) that pension plans have not been the norm, so this should not be a surprise. People that continue think "someone else will take care of it" have a rude awakening.
While I think employers have an important role in education, ultimately, the loyalty is gone between employer and employee; therefore there is only so much that can be done. No matter what new campaign, materials, or strategy the industry comes up with, the "financial cancer" will continue to move in the same direction - those that want to save and feel they can afford to, will; those that feel they can't afford to, won't.
B about right.
Although I thought was interesting that on the website it had a related article about 20 somethings being too conservative with their investments. I am in my late 20's and experienced the stock market fall in the 80's, the dot com crashes of the 90's and the post 9-11 markets. I think I will stick with my conservative investments thank you very much!!!
I think the article is right (A). Employers used to foot the retirement bill with pensions and do not now with 401ks. Employees haven't quite gotten it yet that they will not receive the guaranteed DB pension their parents did. Employees are not saving enough or retiring too early and their Money will run out. We just need to keep plugging away to get them to save more.
I watched this last week and would say it is about right. The bashing of United was a little over the top but overall I think it is a great wake up call.
So much so, I plan on hosting a 'lunch and learn" for our employees, streaming this program. I was most struck by the knowledge that lower paid ees do so poorly with their 401k versus more highly paid ees. We really need to make personal investment advice mandatory for ees. Even though I work for a high tech firm and the majority of our ee population is highly paid, I still see poor investment strategies in our 401k - ees in their 30's almost 100% in bonds and money market, etc.
(a) It got it right. It was by far the most accurate portrayal of the county's retirement shift I've seen or read.
I would say b) about right.
It covered a lot of topics but I don't know if the story will sink in. I don't know if the documentary really went into the mind-set of the population. The average person puts their retirement on the back burner and acts like they are renting a movie. If they return it a little late, they will just pay a little extra......If I don't save now, I still have time or I can pick-up a part-time job at Home Depot or Wal-Mart. Social security was meant as a supplement just like the initial 401(k). Too many believe social security is there to replace their income. Healthcare costs alone will wipe out the retirement savings of many retirees.
The story should have concentrated a little more on the 50 year old boomers and showed a comparison when people think they will be retiring and how they will spend retirement to the actuality of the situation. It's at the point where I think only scare tactics will wake up the population. I'm from the "X" generation and being in the industry my whole career have always maxed my contribution and have except for a couple bad markets maintained returns in the double digits. And for what it's worth, I worry if I will outlive my savings. It's a shame this was on PBS and not prime time.
The program was (c) half and half. It laid out the issues surrounding this area and it did a good job of raising the red flag. However, I feel that too little was said about solutions, potential solutions and the lack of will (or is it backbone) in Congress to address the issues. It would have been a better program if they had also tied in the issues that Social Security has and the fact that no one in Congress seems to want to face those either. In the old days, we were taught that retirement planning was a three legged stool. If Social Security isn't addressed, if 401(k)'s aren't fixed we better be ready to balance on that one leg of our own assets. I fear that many of us aren't coordinated enough to do that and not fall down.
For me, as well as many in our profession, there wasn't a whole lot in there that I didn't already know. However, I got a combination sense of relief/dose of fear as I watched the professional meeting leader conduct the employee 401k meeting. I noticed that he was getting as many blank stares as I do. Scary ain't it.
I thought the documentary hit the nail on the head with exposing the problems associated with having ONLY a 401(k) for retirement. I was, however, completely taken back by the comments that David Wray made regarding the positive aspects of a 401(k) and the need for their further proliferation. If he's one of the main people delivering information to the unknowledgeable masses about the "benefits' of a 401, God help us all!
I watched the show on Wednesday night and I'm afraid to say that I think they were (b) about right. I am the Administrative Manager of the multiemployer DB and DC plans for construction union. Our DC plan is self-directed accounts and as they discussed on the show, investment education is our biggest challenge; just getting the participants to take an interest and realize that they have to look at this themselves is a problem.
20-25% of them are still in the Default Fund that they were started in 10 years ago. We try to hold education meetings every 12-18 months but attendance is a problem. One year we offered 4 different time slots on a Saturday and a total of 12 participants out of almost 400 came that day!
I enjoy the NewsDash - thanks for your hard work on it.
I did watch the documentary. And it reinforced my personal concerns and doubts/suspicions regarding company "promises" to the "most valuable resources". What would be revealing would be to know how many of the employers who are terminating their qualified defined benefit programs are also terminating their non-qualified plans covering the executives making the termination decision. More revealing, how many companies are establishing non-qualified plans to insulate the decision makers from the same benefit reduction as the rank and file employee?
I hope Dallas Salisbury is correct when he commented the other day that the documentary might have as that which lead to the passage of ERISA and level the playing field and make the "game" more honest and open for ALL the players.
I watched the program Tuesday night (even recorded it for posterity). I thought it was very good, but if anything it was too optimistic. I thought Hedrick Smith should have brought out additional issues such as:
(1) airline pilots (since they were profiling United Air Lines) took a huge whack to their pensions for two reasons: the maximum PBGC benefit is roughly $45,000 a year, and as highly compensated employees their pension benefit was far higher than that (often six figures); and secondly, the FAA requires airline pilots to retire at age 60, but the PBGC reduces the pension benefit substantially if you are under age 65, so they don't even get the $45K but something more like $30-35K.
(2) I'm reading Ed Slott's book about taxation of IRAs and 401(k)s, and the rules are hideously complicated about distributions and estate tax implications. The average person has no chance in hell of even knowing that these issues are waiting to whack them when they retire or die. If you screw up the planning you can lose a large part of your hard-saved money to taxes instead of passing the remaining balances to your heirs.
(3) While Hedrick Smith did touch on it, he really didn't emphasize how utterly ill-equipped most Americans are to be the investment managers of their retirement accounts. A corollary to this is all the con artists, sleazy stock brokers and others who are more than eager to help you "invest" your money if there's a commission involved, but aren't looking out for your long-term welfare. Most individuals' accounts are going to be consumed by high fees, failure to diversify properly, inappropriately risky investments, and the possibility of a major market downturn just before retirement or during (now lengthy) retirement. And that doesn't even touch on how does one invest money after retirement? There are an awful lot of high-fee annuities out there that are just plain rip-offs.
(4) There is also the problem of (mostly small) employers who withhold employees' 401(k) contributions from paychecks but then fail to forward them on to the plan custodian. This happens all the time and the Department of Labor is not as vigilant as it could be about this. I had the misfortune of working for an employer who did this to me, reported him to the Dept. of Labor, and they did absolutely nothing about it. There should be a law similar to what happens if an employer withholds payrolls taxes from a paycheck and then fails to deposit the money with the government - the penalty is 100% of the tax, plus it is one of the few exceptions that can pierce the corporate veil (liability can reach to the officers and directors of the company personally).
(5) And of course, the parallel-to-DB-pension-plan-collapse of privately insured health care means that before retirement and in retirement, future retirees are going to have to pay a much larger share of their health care expenses than previously, since employers can't wait to jettison retiree health care coverage (that's first to go, ahead of the current work force's health care coverage, which is also eroding).
Yes, I'm being very pessimistic here but this is the reality. I feel inadequate to the task of managing my retirement accounts, and I am a CPA, have a Master's in Taxation, and am a certified internal auditor and certified fraud examiner. It's insane to expect that the average American can possibly manage their retirement accounts properly. However, my trust of outside advisors is even less, so I am at this point still doing it myself, with the help of Financial Engines and other online investment tools.
Is it time to plan spending our retirement in Mexico or South America? Or will we all be living in mobile homes in Gila Bend, Arizona?
I thought the program nailed it! I tell clients that there is a "perfect storm brewing" in regards to retirement issues. You do the math: Pensions Disappearing + Social Security Insolvency + Medicare Insolvency + Rising Healthcare Costs + Longer Life Expectancy + Negative Savings Rates = Retirement Crisis. But hey, we sure look good in our cars and houses now!