Stop Believing the Myths About 401(k) Plans

December 02, 2010

The former publisher of the Las Vegas Review-Journal wrote a column this week calling public employee pensions “grotesque shadows of their initial good intention” and pushing private savings plans as the future of retirement. Secretary-Treasurer Lee A. Saunders sent a letter, which was published in today’s Review-Journal, defending members and their pensions, and setting the record straight. The letter is below:

To the editor:
In response to Sherman Frederick's Sunday column, "Public employee pensions: We can't afford them":
Mr. Frederick baselessly claims that individual retirement plans are "a better, more responsible way to provide retirement benefits for public workers." Individual accounts such as 401(k) plans are savings plans, not retirement plans, despite what their boosters may claim. They have put retirement security for millions of Americans at risk, and the Review-Journal does a disservice to its readers when it promotes them.
While Mr. Frederick may be eager to do the bidding of the Wall Street firms that profit at the expense of workers, the truth is that pensions are a better deal. A recent study by the National Institute on Retirement Security found that professionally managed pensions can deliver the same level of benefits at half the cost of a 401(k)-style plan.
The median balance of all 401(k) accounts is less than $13,000, barely a fraction of what is needed for a secure retirement. Market changes can put those who rely on individual retirement accounts at high risk, because 401(k) accounts are rarely professionally managed. As a result of the financial crash that led to the worst economic crisis since the Great Depression, the retirement savings of most baby boomers with 401(k) plans were reduced to levels that may create impoverishment as boomers retire and enter their 70s.
Indeed, there is a gap of $6.6 trillion between what Americans have saved and what they will need in retirement, according to the Center for Retirement Research at Boston College. Instead of eliminating pensions for public employees, we should be doing more to protect the retirement security of all employees. The sooner Mr. Frederick and other pundits stop believing the mythology about 401(k) plans, the better off we'll all be.
Lee A. Saunders
Washington, D.C.
The writer is secretary-treasurer of the American Federation of State, County and Municipal Employees.
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