Frozen Pensions and Falling Stocks: What Will Happen to Retiree’s Incomes?

Economists met at the Urban Institute to discuss the future of income for retired persons. The panel was mediated by Howard Gleckman, author of How Will We Care For Our Parents? It seems in the current market the more appropriate questions is, how will we care for ourselves? The panel discussed the shift in the United States from benefit (DB) pensions to defined contribution (DC) plans. This is a transition that is expected to accelerate rapidly as more companies freeze their DB pension plans. The main issue with a DC plan, which allows employees to make their own investments opposed to the DB plan which functions on an employer-sponsored retirement plan, is whether or not employees know enough about the market to control their own investments. “If you give people the freedom of choice, you run the risk of them making the wrong choice,” Eric Toder a fellow at the Urban Institute said. In today’s financial climate there is an inherent risk factor in most market decisions. Janet McCubbin, the director of economic issues for the AARP Public Policy Institute, said the greater questions are ” whose bearing this risk and at what age are they bearing it?” In a DB plan employees as a whole bear the risk of a financial downturn, where as in a DC plan there is more individual responsibility. The panel also stressed the fact that while pension plans are significant, in 2008 52.5% of aggregate income of individuals 65 years or older comes from social security. Social Security is still the most important form of income for retirees. Peter J. Brady, senior economist at the Investment Company Institute said that the goal of economists now is to “structure compensation packages that are appropriate and comprehensive” for the American people.