Retirement Security: One of Biggest Casualties of Financial Crisis

by Mike Hall, Oct 8, 2008

Fueled by Wall Street greed and Bush-McCain deregulation fever, today’s crashing economy, tumbling home prices and stock market nosedive has cost American workers as much as $2 trillion in retirement security savings during the past 15 months.

Yesterday, several witnesses told the House Education and Labor Committee that 401(k) plans are taking a tremendous battering that could force many people to work longer and retire poorer.

Said Committee Chairman George Miller (D-Calif.):

Unlike Wall Street executives, American families don’t have a golden parachute to fall back on.  It’s clear that Americans’ retirement security may be one of the greatest casualties of this financial crisis.

This is the same stock market in which John McCain wants to dump our Social Security to fulfill his goal of “privatization.”

Traditional defined-benefit pension plans funded by employers also took a big hit, losing about 15 percent of their assets in the past year, according to the Congressional Budget Office (CBO).

In addition, CBO Director Peter Orzag pointed out:

Public pension plans have also been affected by market developments. According to data from the Federal Reserve, for example, the assets held by state and local governments’ pension plans declined by more than $300 billion between the second quarter of 2007 and the second quarter of 2008.

Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research., told the committee:

In the last few weeks, we’ve been confronted with older workers’ and retirees’ lives being turned upside down; their panic tops off an already existing state of chronic anxiety about retirement futures.

As assets shrink in the 401(k) plans, higher gas prices, food costs and stagnant wages have caused more and more workers to cut or stop retirement contributions—and even withdraw funds.

Miller said a recent a AARP survey found that 20 percent of middle-age workers have stopped making 401(k) contributions “to make ends meet.” He also said more and more workers are taking loans against retirement plans to pay everyday bills.

In fact, the financial firm T. Rowe Price reports the company has seen a 14 percent increase in the number of 401(k) hardship withdrawals in the first eight months of 2008.

Yesterday’s hearing was the first of several scheduled to examine the causes of the financial crisis and its impact on retirement security. Said Miller:

With the Republicans’ help and armed with their powerful lobbyists, Wall Street cunningly held off fair regulations by Congress, arguing that Americans would be better off if left to their own devices….The American people are paying the price of this go-go, Wild West approach to governing.

One cost will be the concern that our nation’s workers will not have sufficient savings to ensure a secure retirement after a lifetime of hard work. In the coming months, this committee will examine what measures may be needed to ensure a safe and secure retirement for workers, retirees and their families.

Click here to read the full testimony and for an archived webcast of the hearing.

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