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While the unfunded pension liabilities in many public retirement funds have receivedan inordinate amount of attention, the larger retirement deficit of most Americans is not generating the level of concern that it deserves. Individuals who have been left on their own to save for retirement in 401(k) accounts face challenges that are not being met. As a result of the financial crash that led to the worst economic crisis since the Great Depression, the retirement savings of most baby boomers -- which were already inadequate -- were reduced to levels that may create genuine impoverishment as the boomers retire and enter their 70s.

Because 401(k) accounts are rarely professionally managed, individuals are often exposed to excessive risk. When the market goes bad, individual investors are hit the hardest. Many Americans with 401(k) accounts lost one-third to one-half of their "nest-egg" when the equity markets collapsed in 2008 and 2009. Because most boomers are now well over 50 years of age, they have little time to accumulate adequate retirement savings.

Rather than focusing on the real problems facing most future retirees, much of the media has been focusing instead on problems facing public retirement funds. While the funding levels of some of these plans will present real challenges in the future, the problems can be resolved over a period of 30 years under generally accepted accounting rules. What's more, the combined deficit in our major state and local government retirement systems represents less than 2 percent of total state and local government spending over the coming 30-year period. When we consider that many state and local government budgets have been cut by 10 percent to 40 percent over the past three fiscal years, it's not too difficult to see how governments can rebuild their pension funds once the economy recovers and tax revenues return to more normal levels.

Most government pension funds have 70 to 75 percent of the assets necessary to provide promised benefits. On the other hand, the median 401(k) balance for workers who have had consistent access to such an account was just $43,700 at the end of 2008. But, most employers do not offer such access, and many workers do not have the ability to consistently save. So, the median account balance of all 401(k) accounts is less than $13,000, barely a fraction of what is needed for a secure retirement. In aggregate, the gap between what Americans have saved and what they will need in retirement has been calculated at $6.6 trillion.

The contrast is clear: While public pensions have decades to cover their relatively small deficit, many individuals must accumulate sufficient savings in little more than a decade. Given our current financial straights, this may be impossible.

The public policy implications of these facts are real - and severe. The longer we delay addressing this issue, the more intractable the problem will become. Ironically, at the very time our retirement savings crisis is demanding attention, some politicians think a reduction in Social Security benefits is essential. Republican Leader John Boehner, for example, supports an extension of the retirement age to 70. This may sound like a good solution to our problems for him, but it simply makes retirement less secure for most Americans.

So, what can be done? First, we need to recognize that our current retirement programs, based on individual accounts such as 401(k) plans, are a failed experiment. Enacted during the late 1970s and early 1980s, we now have the experience of a generation to clearly demonstrate that individual investors do not have the skills, time or interest to properly mange their retirement investment portfolios. Indeed, a study by the National Institute on Retirement Security found that professionally managed pensions can deliver the same level of retirement benefits at half the cost of a 401(k)-style plan. This means we must investigate policy options that combine the portability features of 401(k) plans with the professional investment management, long terms asset growth strategies, shared risk and guaranteed income streams that make traditional pension plans so efficient.

Second, we need to stop inflicting unnecessary damage to our fragile retirement systems. Attacks on Social Security and traditional public and private sector pension plans only make our problems worse. We need to provide our pension systems with sufficient time to recover from the aftershocks of the implosion of our economy. No one is seeking a "bailout." Rather, we simply need to allow pension plans to function as intended, with a reliance on long-term growth strategies to weather the ups and downs of an increasingly volatile investment environment.

At the end of the day, our traditional pension systems will remain strong and will continue to be the cornerstone of retirement security for those Americans fortunate enough to participate in such programs. For these and other Americans, Social Security will almost always be the bedrock of a secure retirement. But, for the tens of millions who must rely on Social Security alone, more must be done to help them save in order to live out their elder years in dignity. The sooner we have a serious conversation about this issue, the better.

This blog entry was written by Lee A. Saunders, Secretary-Treasurer of the American Federation of State, County, and Municipal Employees, AFL-CIO.  This blog entry has been cross-posted on Huffington Post and Firedoglake.



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