Author: growthrate

Economic news is important both in its own right, and in how it shapes the terms of political debate.  That’s especially true now, when the news seems to be pointing in both directions at the same time.  To oversimplify, if you’re a professional owner, things are ok, but if you work for a living, well, not so much.  One example is the news from Ford, which Man Eegee diaried earlier.  Let’s see what else we can find.

The US stock market did a header on Friday, falling about -2% for the day, reflecting anxiety over corporate earnings (Citigroup, Intel, General Electric, DuPont, Alcoa, Tyco, Yahoo, Motorola, and IBM all reported disappointing earnings), worries about both Iraq and Iran — especially Iran — the bin Laden tape, and big trouble on the Tokyo Stock Exchange.  So what might be moving the market and telling us about the economy this week?

For starters, more than 150 members of the S&P 500 Index report their earnings this week.  Big names include Microsoft, American Express, 3M, General Motors, Johnson & Johnson, and Sun Microsystems.  We’ll see if last week’s pattern continues.  Several companies’ stocks took hits after they met earnings expectations but failed to predict big sales for the coming quarters.  Some, like Yahoo, produced big gains but fell short of even bigger expectations.  Yahoo fell -12% on its earnings report.

The week has already started with a bang, with Ford announcing a Five-Year Plan called the Great Leap Forward; — no, that’s somebody else, it’s The Way Forward.   Nothing highlights the tension between labor and capital like when a corporate announcement involving a plan for 30,000 layoffs gives a boost to the company’s stock.

Bank of America announced earnings per share equal to last year’s, but, below Wall Street expectations.  B of A blamed the rush of bankruptcies just before the new bankruptcy law took effect October 17.  Of course, if that’s why earnings fell short of what analysts expected, that means analysts somehow managed not to expect a rush to the bankruptcy court.  Maybe the analysts are being normally obtuse or mendacious, or maybe something else is going on.

Another big headline today concerned the Conference Board’s index of Leading Economic Indicators.  It rose +0.1% for December, not exactly a confidence-inspiring performance.  This index is supposed to tell us whether to expect economic growth in the near future.  Looks like a tossup.

What else is on tap?  Well there are all those earnings, then we have (in the US market) retail sales figures Tuesday, December existing home sales Wednesday, December durable goods (cars, refrigerators, that sort of thing) Thursday, and December new home sales and fourth-quarter Gross Domestic Product on Friday.  If the numbers are strong, look for the bulls to point to economic growth and the bears to say the Fed is going to have to keep increasing interest rates, leading to an inverted yield curve and recession.  If they’re weak, the bears will point to lagging growth and the bulls will say the Fed is sure to stop raising interest rates soon.  In any case, there will be something for every market pundit.

It’s easy to find yourself caught up in the confusion of trying to interpret individual bits of data and guess where the market, or the economy, is heading.  Like it or not, the health of the US economy affects all Americans, but the news has different effects depending on where you sit.  The UAW and Wall Street had opposite reactions to the Ford announcement.  It’s a good illustration.  The wingnuts may talk up a winning streak in the Index of Leading Economic Indicators.  The response is two-fold.  First, it’s always possible to debate the numbers themselves, and their meaning.  But arguing there allows them to control the frame.  The more effective response is to shift the debate from the statistical aggregates to what events in the economy mean in the lives of real people.  The families of 30,000 Ford workers (all Ford workers, really), don’t care much today about a +0.1% gain in the LEI.

A new chapter in the erosion of American workers’ pension benefits opened today, as Northwest Airlines Corporation’s 5000 pilots voluntarily approved a freeze on their defined benefit pension plan, and its replacement with a defined contribution plan.  An overwhelming 82% of the pilots casting ballots voted to approve the freeze.  Both Northwest and the pilots’ union had recommended this step.

What’s going on here?

I’ve written before about what seems to be an accelerating trend among US corporations away from defined benefit, and toward defined contribution pension plans.  To review, a defined benefit (DB) plan is a “traditional” pension plan.  When workers covered under a DB plan retire, they stand to receive a set pension benefit — most often a lifetime annuity — determined from a formula including their total years of service, their age at retirement, and some measure of their level of pay while they worked.  A DB plan retiree may always wish the monthly checks were bigger, but such retirees mostly don’t have to worry about outliving their benefits or having them vary from year to year.

To fund the promise in a DB plan, the employer generally sets up a pension fund, a pot into which they contribute cash, investing it today to pay benefits in the future.  If this pot of money isn’t big enough to pay the promised benefits, even after allowing for earnings on the investments, then we say the plan is under-funded.  If an employer has an under-funded pension plan, then eventually it will either have to pony up more cash, try to reduce future benefits, or try to terminate the plan through bankruptcy.  Short of bankruptcy, rolling back benefits that employees have already earned is virtually impossible, but employers can freeze their plans, essentially saying that after a certain date, employees won’t earn any further benefits.  IBM announced such a freeze last week.

Both Northwest’s and IBM’s actions included freezing DB plans and creating or enhancing defined contribution (DC) plans.  In DC plans, like 401(k)s, each participant has an individual account.  Most often, employees contribute to their accounts from their own earnings, and the employers also often match those contributions.  In many instances — Enron, most notably — the company match is in the form of company stock.  In any case, in a DC plan, employees bear the risk of the investment performance of their own accounts, and they also bear the risk that they’ll outlive their money.  On the other hand, a DC plan account is generally portable — if you change jobs, you can usually take your 401(k) account with you, but any DB pension benefits you might have earned often die.  

All things considered, DB pensions are a better deal than DC plans for employees that work for a single company for a long time.  That’s because a DB pension formula usually puts a heavy weight on seniority at retirement.  So why would an airline pilot’s union, whose membership generally have a pattern of pretty stable service for a particular carrier, recommend to its members that they approve freezing a DB plan and switching to a DC plan?  Only because it’s better than the alternative.  Northwest’s pension plan is substantially under-funded, and Northwest itself is financially on the ropes — in fact, the carrier is in bankruptcy.  It’s unlikely that the company can contribute the cash necessary to shore up the pension plan.  If the pilots hadn’t agreed to freeze the existing plan, Northwest would probably have petitioned the bankruptcy court for permission to terminate the plan, a petition the court might well approve.  If so, then the Pension Benefit Guaranty Corporation, the entity that insures insolvent pension plans, would likely take over the plan.  Trouble is, PBGC generally pays benefits at reduced rates.  So the pilots were in a corner; approving the freeze was the best choice under the circumstances.

Northwest, IBM, Delphi, even the debate over Social Security — are all part of a broader trend away from fixed, lifetime benefits for American workers.  More and more we are on our own.  It’s really a strong undercurrent in the general weakening of the economic position of labor in the US economy.  It also represents a broader erosion of the ability of American workers to pool risk and take collective action.  Each of us must take individual action, increasing our savings and learning how to invest, but there is also an urgent need for us to develop alternative means by which to take collective action.

The past couple of years have seen an accelerating trend away from traditional, defined benefit pension plans for American workers.  The trend is away from fixed retirement benefits, paid over a retiree’s lifetime, to a less certain world in which we all have to rely on our own savings — 401(k)s, IRAs, and other savings.  In the On-your-Ownership society, individuals rather than corporations or government take all the investment risk, and all the risk of outliving our savings.  Today, IBM laid another brick in this wall.
IBM announced that it plans to freeze its pension plan in 2008, opting instead to enhance its 401(k) plan contributions for 125,000 US workers.  Nothing will change for current retirees, and the shift to 401(k)-only retirement benefits is already in place for employees hired in 2005 or later.  The change is that current employees will no longer accrue traditional pension benefits after 2008.  Their benefits will freeze at that point, and after that IBM will only add to their 401(k) accounts.  

IBM says that they will enhance the 401(k) plans that will now provide every employee’s main retirement benefit.  According to the AP,

IBM executives said that by no longer having to account for pension accruals that would have mounted after 2008, the Armonk, N.Y.-based technology giant will save between $450 million and $500 million this year alone and up to $3 billion from 2006 through 2010.

How does a change that doesn’t happen until 2008 save IBM money now?  It has to do with the pension promise.  IBM is big enough that its actuaries can predict pretty accurately how much the pension benefits today’s employees would accrue in 2008, 2009, and beyond, would be worth.  To pay these future benefits, IBM may have to put cash into its pension fund this year, planning to invest that money until the benefit payments come due.  By canceling the future benefits, IBM relieves itself of the need to fund them.  Apparently, the amount by which the company will expand 401(k) benefits is smaller.  Even if not, 401(k) benefits really aren’t a dollar-for-dollar substitute for a traditional pension plan.

IBM receives another, potentially more important benefit by shifting to a 401(k) plan.  In a traditional pension plan, the sponsor bears all the investment risk, and the risk that retirees live longer than expected.  In a 401(k) plan, the employee bears both risks.  

IBM’s is not going to be the last pension freeze announcement we will hear.  The trend among large employers to move in this direction seems to be gathering momentum.  For individuals, the implication is simply this:  You’re increasingly on your own, and your 401(k) isn’t likely to be enough by itself to fund a comfortable retirement.  So save now, and learn to invest.

As his trial on charges of fraud and conspiracy in Enron’s collapse approaches, Enron founder and ex-CEO Ken Lay has taken the unusual step of going public with his protestations of innocence.  In a speech before 500 business and academic leaders at the Houston Forum, Mr. Lay proclaimed his innocence, and asked former Enron employees to come forward and testify on his behalf.

More astonishing than Mr. Lay’s temerity was the reason he gave to explain why no one had come forth to date.  As the AP reports:  

He accused the government of bullying potential witnesses who could help him and promised to testify in his own defense.

“Truth is a great rock,” he said, quoting Winston Churchill. “Whether it will continue to be submerged by a wave — a wave of terror by the Enron Task Force — will be determined by former Enron employees.”

What, if anything, is this man thinking?

At the same time he was appealing to what he imagines to be the loyalty of former employees, he also indulged in some finger-pointing.  

Lay also insisted that Enron was strong until former finance chief Andrew Fastow hatched schemes that fueled financial rot, and that he didn’t know he had entrusted company finances to a crook.

So let’s look at our scorecards for a moment.  Mr. Lay has

1. Protested his innocence, apparently by saying that he was too dumb to notice that anything was wrong
2. Accused the government of bullying witnesses
3. Equated the Enron Task Force with terrorists
4. Appealed to the loyalty of former colleagues to testify on his behalf, presumably to the effect that it’s no surprise that he was too dumb to notice that anything was wrong
5. Pointed the finger at former colleagues
6. And in general acted foolishly.  Maybe he’s hoping that if his behavior is idiotic enough, a jury will actually believe that he was too dumb to notice that anything was wrong.

Professional observers are aghast.  

“This is the kind of speech that can really raise the ire of judges if it can in any way be perceived as an attempt to influence the jury pool,” said Jacob Frenkel, a former federal prosecutor. “Getting up and speaking at this point is treading in dangerous territory.”

[US District Judge Sim] Lake has considered issuing a gag order on defendants, their lawyers and prosecutors. The government supported it, but the defense teams did not, and the judge said earlier this month he would monitor public statements and perhaps revisit the issue.

Michael Ramsey, Lay’s lead lawyer, said Tuesday he hoped his client’s speech wouldn’t prompt a gag order.

The ironies are all over the place here.  Mr. Lay, after all, was once a big Bush supporter, but somehow sees fit to complain about the government’s conduct in the case.  But perhaps most ironic is the appeal to his employees’ loyalty.  If he thinks that the rank-and-file are likely to be loyal after the collapse of the company and its stock, which so many owned through their 401(k) plan, and if he thinks former executives are likely to be loyal after he has fingered Mr. Fastow, then Ken Lay must just live on another planet.

I don’t know about you, but I’ve reached the point that when President Bush appears on TV, I just turn it off.  There’s no point in listening, because what he says has lost what little connection it ever had to what, if anything, he actually intends to do.  They have an expression in Texas for someone like that.  They say he’s all hat and no cattle.

Now, this could be just another redundant rant, but it also needs to be part of a national electoral strategy.  Here’s what I have in mind, in a whole lot less than 2200 words.

Let me outline how I see us using the President’s consistent failure to deliver on anything of substance.  The process has two basic steps.  First is to pound home the “All hat and no cattle” message.  Second is to demonstrate that the Democrats have a viable program that could actually accomplish something.  I’ll start with my thoughts here, but I’m not a political pro, so if anything here has legs, it’s not likely to be in the form I set it out here.

All hat and no cattle:  The images are obvious – attacking wood with chainsaws, falling off his bicycle, whatever.  But the telling ones are the images of Mr. Bush saying things that received absolutely no follow-through.  Here are some examples.

Any number of veto threats.  It’s becoming embarrassing.  It used to be that when Mr. Bush threatened a veto it shifted the legislation a bit.  Now the threats have become completely empty, even on such near-and-dear topics as spending and torture.

Those pesky weapons of mass destruction.

Most famously, “Mission accomplished.”  Enough said.

Mr. Bush’s famous New Orleans flyover.

Has anybody seen any action following onto Mr. Bush’s Jackson Square speech in New Orleans?  bayoustjohndavid has, and it doesn’t look much like what Mr. Bush talked about in his speech.

Mr. Bush’s speeches about Social Security reform.  He looks like a below-average economics student that also hasn’t done his homework when he tries to explain why his proposals would make us better off.

Let’s watch what happens with his speechifying about pension funding.  That story is still open, but sure enough he’s made one of his famous veto threats, saying “I’m not going to sign a bill that weakens pension funding for the American workers.”

We’re going to find Osama, dead or alive.

I’ll fire anybody in my administration connected with outing Valerie Plame.

You get the idea.  We can spin out a number of variants.  My favorite is that after 9/11, we gave up a great deal in terms of civil liberties on the premise that it would allow our government to make us safer.  Not only has progress in preventing terrorism been weak (not a sound-bite case, but one that we can make), but as Hurricane Katrina demonstrated so graphically, this government has no skill, and perhaps no interest, in keeping us safe anyway.  So exactly why did we give up so much?

So far, though, all we have is a negative message, and that’s without even talking (much) about the Culture of Corruption.  But it’s all just a gripe unless we propose an alternative.  Here goes:

We need a plan for Iraq.  Our country needs one anyway.  It’ll be ugly no matter what we do, and we need to say that up front.  But we at least have to sketch some of the real objectives we might have (regional security, energy policy, whatever), say what we can about how we’ll pursue them, and get home.

We need a domestic economic plan.  Here I’m on a little firmer ground than on Iraq.  The basic ideal the Democrats can successfully champion is the High Road to Prosperity.  The idea here is that government’s role is to invest in public infrastructure, including education, health care, and physical infrastructure, which makes it possible for all Americans to identify and pursue opportunity.  Government establishes and enforces rules that level the playing field, on the premise that basic fairness is essential to an open economy, an open economy is essential to continued growth and innovation, and continued growth and innovation are essential to continued prosperity.  Under such a system anybody that want to bust their asses to make a whole lot of dough can still do it.  But unlike a system that defends entrenched wealth, our system allows anybody that wants to work at making an honest living to support a decent household life to do that, too.  

We need a whole lot more, but this is a start.  And of course, we need a standard bearer.  Any nominations?

This is an adaptation of a newsletter I circulate privately IRL.

This year we have heard a good deal of political talk about the funding and management of Social Security, but another, more important source of retirement income for many Americans is also at risk.  A series of high-profile corporate bankruptcies have begun to focus public attention on the state of pension funds in the United States. As part of their plans of reorganization, United Airlines and US Airways have terminated under-funded pension plans, a step that releases them from heavy retirement obligations.  Northwest Airlines Corp., Delta Airlines Inc., and auto-parts maker Delphi may seek to follow their example.  Plans terminated in this way become wards of the Pension Benefit Guaranty Corporation (PBGC), sort of an FDIC for pension funds.  PBGC insurance gives the plans’ participants some protection, but PBGC benefits have caps, so many retirees receive significantly smaller payments than their employers had promised.  
Congress established the PBGC in 1974 as part of the Employee Retirement Income Security Act (ERISA), now our basic pension law.  Pension plans pay premiums into its insurance fund.  If an under-funded pension plan goes through a “distress termination” (in a bankruptcy, say), the PBGC takes over the plan, paying benefits at rates that may be less than those promised in the original plan.  For years, the PBGC’s fund was sufficient to cover the liabilities it assumed from the plans it has taken over.  But the PBGC’s most recent financial report indicates that its assets are now worth some $22 billion less than the liabilities it has committed to fund.   Its funding has been a victim of the accumulation of failed plans and the insufficiency of the insurance premiums it can charge.  If the present trend continues, the PBGC’s funding has the potential to become another public crisis that could throw millions of retirees unexpectedly onto government coffers.

Published reports generally have it that US pension plans have an aggregate funding shortfall of some $450 billion.  Congress has taken note of the issue, and the Bush Administration is pushing legislation it says would require corporate sponsors of traditional pension plans to shore up their plans’ funding.  The original bill faced opposition from businesses, which warned that if the requirements were too tough some would stop offering pensions altogether.  Interestingly, some Democrats, along with organized labor, have tended to side with business here, fearing the demise of an important benefit.  In mid-November, the Senate passed a compromise bill, but critics argue that this version would actually weaken funding standards.  

The politics of the pension bill are a little confusing, but it looks like the Republicans are trying to appear strong on corporate pensions largely as a tactic to push the President’s Social Security reform agenda.  I would interpret that as a reaction to the opposition to Social Security reform, which is so strong in part because other traditional retirement benefits are in trouble.  People like the idea of fixed, predictable benefits.  If their pensions are more secure, the Republican thinking seems to go, then maybe people will be more tolerant of changes in Social Security.

Are Pension Plans Dinosaurs?

The pension landscape in the US has changed dramatically in recent years.  Twenty-five-years ago 40% of American private-sector jobs offered traditional Defined Benefit (DB) pension plans.  DB plans promise employees a lifetime retirement pension reflecting their total years of service, ending salary level and retirement age.  These plans especially benefit employees that stay many years with the same company.  Today, only about 20% of US private-sector jobs offer DB plans.   Instead, more companies offer a type of plan called a Defined Contribution (DC) plan.  The most familiar DC plan is a 401(k).  The Employment Policy Foundation reports that defined contribution plans now cover more than 40% of US workers, up from less than 20% in 1980 — the mirror image of the shift in DB plan coverage.  DC plans have some advantages, particularly to younger workers that expect to change jobs frequently during their careers.  But they have advantages for employers, too.  401(k) plan participants have a defined portfolio of assets, rather than a defined benefit for life. This arrangement limits the company’s obligation to the employee.  In a DB plan, the plan bears the fund’s investment risk, and the risk of paying benefits to long-lived retirees.  In a DC plan, the risk of poor investment performance, and of outliving the retirement assets, falls on the participant.

Despite the risks, a more mobile workforce may still prefer DC plans.  The shift from DB plans to DC plans may also reflect other changes in the economy.  Under ERISA the compliance costs of maintaining DB plans are substantial.  As a result, small and mid-sized employers are less likely than large ones to maintain DB plans.  Smaller employers are also more likely to drop existing DB plans.  The staff of the California Public Employees’ Retirement System (CalPERS) points out that the big decline in the number of DB plans in the US has occurred almost entirely among plans with fewer than 1000 employees.  The ideal environment for a DB plan is a large company with a stable workforce.  As the economy has shifted away from old-line industries that fit that description, the notion of long-term, company-sponsored retirement benefits has become less prevalent.  For younger workers, these are trends that reinforce one another.  For many older workers, they amount to an emergency.

Are Employees Today better off?

I’ve talked about some advantages DC plans offer today’s employees.  Most DC plans are portable; if you change jobs you can generally take your 401(k) balance, or at least your own contribution, plus the vested part of any company match, with you.  Vesting in a typical DC plan occurs relatively quickly.  That means you can accumulate retirement savings throughout your career, even if you change jobs several times.  In contrast, DB plans favor long-time employees.   Short-time employees receive small, or no, pension benefits. If you have changed jobs or plan to change jobs, you are likely to be better off with a DC plan.

But are you well enough off?  The employer’s contribution to a DC plan provides benefits to most employees, while the DB plan pays most generously to those that retire after long service.  Thus a fixed employer contribution just can’t provide as much in benefits per recipient in a DC plan as in a DB plan.  Pensioncube.com has a useful illustration of this phenomenon.  They compare the value of the benefits a hypothetical 25-year veteran of a public employer, retiring at age 60, might receive from a DB plan and a DC plan, assuming similar contributions and investment rates of return.  In their illustration, the DC plan balance at retirement is just 68% of the value of the DB plan’s benefit.  If you plan to work at the same place for most of your career, you’re probably much better off with a DB plan.

Pensioncube.com’s example assumes similar investment returns in the hypothetical DB and DC plans.  Unfortunately, that’s a generous assumption.  The investments in a traditional DB plan typically reflect a level of risk appropriate for a very long investment horizon, the pooling of uncertainty across a large number of plan participants, and the backing of the sponsoring corporation.  In addition, DB plans typically have full-time, professional management.  Not all DC plan participants, faced with the task of choosing investments themselves, will be comfortable managing a portfolio with the appropriate level of risk.  Worse, in some 401(k) plans the employer matches employee contributions with company stock, increasing the participants’ portfolio risk.  In extreme cases, such as the collapse of Enron, this can be a catastrophe.  And finally, in many DC plans the investment choices available to participants are high-cost mutual funds, whose expense ratios act as a constant drag on participants’ returns.  The CalPERS research brief asserts that mutual fund costs, on average, amount to 1.35% of assets per year for individual investors, against the approximately 0.18% of assets that CalPERS spends on its own investment management.   In the end, the assumption that a DC participant can produce the type of returns a DB plan earns is optimistic.  A 401(k) may be better for you because you have changed jobs several times, but it’s a mistake to assume that your 401(k) savings will replace a traditional pension dollar for dollar.

The Rise of the On-Your-Ownership Society

The troubles in the DB world and the perils of the DC landscape may leave you feeling like you’re on your own.  Compared to a loyal retiree collecting a pension annuity from a well-funded DB plan, today’s worker faces increased risk both in the workplace and in decreased support from corporate retirement benefits.  The governmental insurance backing pension plans never guaranteed more than partial protection, and even that is under strain.  Public programs — especially Social Security and Medicare — are under scrutiny and subject to change.  Growing pension uncertainties, along with the risk of corporate bankruptcies and large-scale layoffs, combine to erode the security of historical retirement benefits for millions of workers.  Many people may arrive at retirement and find that they just don’t have enough, and neither their employer nor the government will have anything for them.  They will be on their own.

In fact, to an increasing degree we’re all on our own with respect to retirement.  On our own, at least, in that if the trends continue, a comfortable retirement will be virtually impossible for those without sufficient savings.  From an investment perspective, this is the worst possible situation.  It has no good solution.  Some people in this situation will take excessive risks with their existing assets, often at great personal cost.  Some may expose themselves to fraudulent investment schemes in the hopes of making higher returns.  Others will find that they need to continue to work past the age when they would like to retire, to the detriment of their comfort, and perhaps their health.  Many may squander their limited dollars gambling or playing lotteries.  At the extremes, individuals become a burden to their families, to their communities and to social services.  How do we approach the challenge of avoiding an outcome like that?

Protecting your retirement

If your anticipated retirement accounts are not sufficient to replace most of your pre-retirement income, then you’ll need additional savings.  It is that simple.  The money that you are able to put aside — beyond your retirement plans and IRAs — will likely be an indispensable resource in your retirement.  Increasing your level of after-tax savings has other advantages as well.  After-tax savings increase your ability to make the most of the tax features of retirement accounts.  

After-tax savings can also give you more flexibility when the time comes to make withdrawals from your retirement accounts.  Under current law, withdrawals from traditional 401(k) plans and IRAs are taxable as ordinary income.  Withdrawals prior to age 59-1/2 carry additional penalties.  But current law does not require you to make withdrawals until age 70-1/2.  If you retire before 59-1/2, after-tax savings allow you to avoid the penalty.  No matter when you retire, if your after-tax savings can support you until about 70, then your retirement assets can grow, tax-deferred, for as much as eleven extra years.

Most of us still expect to collect some Social Security.  It won’t be nearly enough to support a comfortable retirement, but it should help.  Many can still look forward to receiving traditional pension benefits, whether from a DB plan or a DC plan.  Like Social Security, what might happen to these benefits is beyond your control, but you can and should monitor how much they are likely to provide, and watch for developments that might impair them.  For most of us, the reality is that pensions will not be enough.  What we are able to save from what we earn may become our most significant asset in retirement.  

The recent bankruptcy filings of Northwest, Delta, and Delphi, and the strain their under-funded pension plans may place on the Pension Benefits Guaranty Corporation, highlight one force behind a larger trend away from traditional defined benefit pension plans for long-term employees.  They obviously affect the employees of those firms most, but they highlight underlying forces that increase the uncertainty in traditional retirement programs.  Policy responses are underway in the Social Security debate and in the Congressional debate on pension funding rules.  But the general tenor of the trend is away from a paternalistic system of defined benefits and toward a world in which we must each increasingly rely on our own resources.  

For most people, the key response is to re-evaluate your own retirement situation critically and realistically, and create a coherent savings and investment plan.  This plan should coordinate after-tax savings with your pension accounts, income stream and other assets (even your home), to provide the future cash flow for a comfortable retirement.  Watch for excessive costs.  Too many layers of fees can, by themselves, hold you back from an inadequate retirement.

The battle for your retirement is on, and it has several fronts.  Social Security, Medicare, and pension reform are all in play.  The economy and our employment patterns are changing, too.  In the process a number of traditional institutional advocates for rank-and-file workers — especially unions and pension funds — have weakened.  The mutual fund managers in your 401(k) plan aren’t going to step up for you any more than the Republicans in Congress will.  This isn’t a situation we can correct overnight, and the outcome of our political efforts is uncertain.  Meanwhile, life goes on, and if you aren’t retired already, the day you’d like to retire continues to grow closer.  One thing is sure.  In the On-Your-Ownership society, you are your own backstop.  Your best bet is to save, learn to invest, and in the meantime, pursue new avenues of collective action.