Lowenstein on "The End of Pensions"

Roger Lowenstein in the New York Times presents a valuable analysis of the current state of our private and governmental pension system. Among the article's many useful points, I would emphasize these three:

1. As I preach to high school and college students whenever I get the chance, it's important to save a lot, and to start saving early. The article states that "In 1980, about 40 percent of the jobs in the private sector offered pensions; now only 20 percent do."

2. Mr. Lowenstein asserts that the government's pension insurance could well have made the situation worse. It is, he claims, a fine example of what economists call "moral hazard".

3. Another way poor governmental choices contributed to the problem: wage controls and high tax rates during World War II gave private companies incentives to create pensions. These are the same frozen wages and high tax rates that helped give us employer-provided health insurance, which is also a major problem today. As always, the bad effects of price controls are huge.

Comments

[Jake]

I was a CPA when the onerous pension laws with insurance were passed. I can assure you those laws killed pensions dead and it killed them quick.
The cost of the maintaining a pension plan skyrocketed and the penalties for a misstep were breathtaking.

Every company we dealt with switched from pensions to 401Ks. The only exception being companies with union contracts.

The only problem with 401ks is the IRS's contribution restriction for employee and employers is far too low. Many companies contribute a fixed amount of their profits to their employee plan but continually run into the IRS limits. The companies end up giving less than they want to.

Ironically, the federal government severely restricts the amount a private employee can retire on but gives its own employees a pension so magnificent that no private employer can match it.