Retirement needs a whole new look

Commentator John Steele Gordon


Doug Krizner: A federal agency took over pension payments yesterday for nearly 3,000 workers and retirees of bankrupt snack-food maker Tom's Foods. These folks have the Pension Benefit Guaranty Corporation to thank. It steps in to provide defined benefits when a pension plan fails. Commentator John Steele Gordon says it's time to change our thinking about pensions.

John Steele Gordon: In the middle third of the 20th Century, General Motors was one of the first industrial corporations to develop a pension system for its workers' old age.

Charles Wilson, the president of General Motors, told the father of scientific management studies, Peter Drucker, about his ideas for a company pension shortly before World War II. Back then, Drucker said that if that money was invested in the stock market, the workers would be the owners of American business in a few decades. "Exactly as they should be," Wilson replied.

Drucker was right. By the 1960s, pension funds were among the biggest players on Wall Street. But the pension system that evolved in the mid-20th Century no longer suits the economy we live in. The "defined benefit" plan, where corporations pay out a guaranteed amount, has proved disastrous in such volatile industries as airlines.

And people no longer typically work for one company their whole lives. They move about in a much more dynamic economy. Under the current system, they often have to leave pension money behind or stay in a job that no longer suits them.

Instead, we need total reform of the retirement system. One where individuals own their own retirement accounts at major financial services firms.

They and whatever company they work for would make mandatory contributions to it throughout their working lives, and what the money could be invested in would be strictly regulated. People couldn't touch the money until they retired, though they could leave it to their heirs tax-free.

Some countries — Chile is a notable example — already have a system like this. It would do wonders for the savings rate, move still more American families into the middle class, make old age comfortable for the many, not just the few, and help the next generation get a start.

All that's needed is the political will to defeat the status quo. That won't be easy. It never is.

Krizner: Business historian John Steele Gordon is author of "An Empire of Wealth." In Los Angeles, I'm Doug Krizner. Thanks very much for listening and make it a good day.


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