Social Insecurity

Joe Rees, a retired factory manager and accountant in Bucks County, is another neighbor seeking to stretch his Social Security and pension pay.

He learned last week his checks will rise by 0.3 percent next year, a "Cost of Living Allowance," up from zero this year. He calculated that will gross him an extra $87 next year. Enough to cover the rise in his Medicare Part D bill, with $3 to spare.

Rees figured he'd "buy a couple cheap beers" with that gain - until he recalled that his school property taxes are also up, which will wipe out the increase, and leave his disposable income down, again.

Rees knows the Consumer Price Index and medical costs are also up more than his Social Security. Still, he counts himself blessed to have switched careers in his 40s, when manufacturing tanked - and to retire at 62: "At some point, we all have to face facts and seek ways to reduce costs."

Social Security can't quite afford even little boosts, warns Professor Olivia S. Mitchell, director of the Pension Research Council at Penn's Wharton School.

Trustees said last March that they'll face shortfalls by 2034. The Congressional Budget Office now says that will happen sooner, by 2029, unless contributions are boosted or payments are trimmed, Mitchell told a Penn symposium on pension planning Wednesday.

Social Security next year will pay up to $2,689 a month, with the average retiree getting about half that. It sure beats nothing, but it's not enough to keep "middle-class" retirees independent, Desiree Hung, lobbyist for AARP, told the symposium.

What to do? Australia and Chile have forced-savings plans that cost workers roughly as much as Social Security but are invested more aggressively, in hopes of larger returns. In the U.K. workers are automatically enrolled in supplemental pensions, but can choose to "opt out" if they'd rather keep the cash.

Phyllis Borzi, who heads the Federal Employee Benefits Administration, says she's worked for 40 years, as a congressional staffer and advocate, to expand federal support for old-fashioned guaranteed pension plans - only to watch as companies freeze and cancel them, and efforts stall to prod a "dysfunctional" Congress into action.

In Washington, pension legislation has been "stagnant" almost since the 1974 passage of the Employee Retirement Income Security Act, said Mark Iwry, deputy assistant Treasury secretary.

ERISA gave pensioners valuable protections from getting ripped off. But by adding to employers' responsibilities, it helped make pension programs more expensive to administer and less popular. Meanwhile, labor unions that bargained for guaranteed pensions lost clout. Far more workers are now covered by 401(k)-style savings plans, whose value fluctuates with investment markets. More than half of workers aren't in retirement plans.

A bipartisan effort in the 2000s to ease retirement plan rules and encourage more small businesses to participate was blown off Washington's agenda by the Obamacare fight and harsh partisan politics, Iwry recounted.

So Borzi, Iwry and other policymakers and scholars are working to help states and cities set up private-employer retirement-savings projects.

A string of mostly Democratic-run states - California, Connecticut, Illinois, Maryland, New Jersey, Oregon and Washington - have passed legislation designed to make it easier to set up retirement plans for workers. New York is starting a city-backed employer program. Philadelphia and Seattle are looking at plans.

Kathleen Kennedy Townsend, former lieutenant governor of Maryland who is now an investment professional, says her state has set up its own worker-funded "automatic payroll deduction" savings program. Officials calculate an average $35,000-a-year worker who put aside 3 percent of pay would eventually collect a pension worth 12 percent of final salary, a useful bonus atop Social Security.

These are modest solutions. Citing research from Boston College's pension-study program, Townsend noted that corporate defined-benefit plan investments returned almost 5 percent a year over the last 25 years; 401(k) plans, 3 percent; individual IRAs just 2 percent.

By contrast, larger, more efficient public pension plans posted average 8.5 percent annual returns. (Though plan actuarial firms have warned they likely won't repeat those gains in the next several years.)

It's easy to appreciate the federal, state and local officials who are trying to set up local programs to make it easier for small businesses to offer worker-funded retirement plans. Some large private money management firms are lobbying in support: They hope to help manage the money, and collect fees.

These programs aren't a substantial substitute for the corporate pension plans of old. Nor do they stand in for the big state and local government plans, which guarantee robust retirement payments for police and teachers, though some are badly underfunded and face calls to cut benefits for future hires.

The energy with which these officials and scholars are seeking retirement alternatives points out the failure of our national leaders, including the presidential candidates, to help us reach retirement security.

JoeD@phillynews.com

(215)854-5194@PhillyJoeD

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