The Transformation of the American Pension System: Was It Beneficial for Workers? - Softcover

Edward N. Wolff

Softcover

ISBN 10: 0880993790 ISBN 13: 9780880993791

Publisher: W E Upjohn Inst for, 2011

Synopsis

While much attention has been focused recently on the well-being of Social Security, the revolution in the private pension system in the United States during the past three decades has remained relatively under the radar.

Beginning in the 1980s, many employers in the United States switched the type of pension plans they offer their workers from defined benefit (DB) plans to defined contribution (DC) plans. This freed them from having to set aside funds to pay guaranteed lifetime benefits to retirees. It also shifted the investment risk to workers, making them responsible for contributing to and managing their retirement funds through 401(k) accounts.

Edward N. Wolff calls this the Great Transformation, and for good reason. From 1983 to 2007, the share of families with DC plans rose from 12 percent to 64 percent, while the share with DB plans fell from 69 percent to 39 percent. This change has not only thoroughly altered how millions of Americans fund their retirement, it has also, as Wolff shows, generated growing income inequality and insecurity among retirees while escalating the importance of Social Security as a source of retirement income. Increasingly, when it comes to retirement wealth, those with DB plans are the haves while those with DC plans are the have-nots, particularly in times characterized by economic recession or stagnation.

Wolff seeks to address six basic questions:
1. With the Great Transformation, did pension coverage expand or contract over time? 2. Did the value of pension wealth increase or decline? 3. Did overall wealth inequality rise or fall? 4. Did the retirement prospects of middle-aged Americans improve or worsen? 5. How did the Great Transformation affect different demographic groups? 6. How did these effects vary between the 1980s, 1990s, and 2000s?

Through exhaustive analysis, Wolff identifies the weaknesses in the current private pension system and offers practical, policy-based solutions aimed at strengthening the system, thereby making retirement a less daunting prospect for workers relying on 401(k) plans as a key source of retirement income and wealth. He also recognizes the importance of Social Security to these workers and suggests ways of strengthening it as well.

About this title

About the Author:

Edward N. Wolff is a professor of economics at New York University and a senior scholar at the Levy Economics Institute of Bard College. He is the author of numerous books, book chapters, and papers on the issues of private pensions and income inequality, and he provides frequent commentary on radio and television.

Review:

At last, in one place, all the data one would want on the impact on households of the dramatic shift from defined benefit plans to 401(k)s. This encyclopedic effort is based on the Federal Reserve s Survey of Consumer Finances between 1983 and 2007, with projections to 2009. The main finding is that 401(k)s looked good relative to defined benefit plans during the long bull market of the 1980s and 1990s, but that edge evaporated in the 2000s. Wealth in 401(k) plans is also more unequally distributed than that in defined benefit plans, and many households will be at risk in retirement. If you want the numbers, read this book. --Alicia H. Munnell, Director, Center for Retirement Research at Boston College, and Peter F. Drucker Professor in Management Sciences, Boston College, Carroll School of Management

Can Americans expect economic security in their old age? Ed Wolff s new book documents authoritatively how radically the American pension system changed between 1983 and 2007, as defined contribution and 401(k) plans elbowed aside traditional defined benefit pensions. Wolff s careful analysis illuminates the holes in the new system and how important Social Security wealth was to retirement income adequacy, even when the stock market and housing prices were booming. Now that those days are gone, his policy recommendations are even more important. --Lars Osberg, University Research Professor and McCulloch Professor of Economics, Dalhousie University

When it comes to analyzing wealth and wealth inequality, Edward Wolff is one of the best. This book presents definitive information on how the dramatic decline of defined benefit pensions and the growth of defined contribution pensions have affected the retirement wealth and retirement wealth inequality of workers and retirees. The book contains data on both historical trends and recent results. It analyzes changes in retirement wealth within the larger context of overall wealth inequality. The book is rich in data-based policy insights. For anyone concerned with how well the U.S. retirement income system is serving the needs of American workers and retirees, this book is required reading. --Johon A. Turner, Pension Policy Center

About this edition

• Publisher: W E Upjohn Inst for
• Publication date: 2011
• ISBN 10: 0880993790
• ISBN 13: 9780880993791
• Binding: Paperback
• Number of pages: 333