Retirement Portability and Pension Reform in the United States

Introduction: The Retirement Income Crisis

It seems almost ludicrous to discuss retirement portability in the current climate, with the chief executive of the United States attempting to force retirees into a position they had not suffered since before the Great Depression. At the tail end of that era, Social Security was established "to protect the elderly from indigence late in life — to prevent a 'poverty-ridden old age,' in the words of Franklin D. Roosevelt" (Peterson, 1996). In fact, many people still view it as essential legislation, and arguably legislation that symbolizes the humanitarian nature of the United States. In a pre-buttal to George W. Bush's 2005 State of the Union address, House Democratic Leader Nancy Pelosi said, "Social Security is the most visionary example of what President Franklin Roosevelt called 'bold, persistent experimentation.' Its goal was to ensure that the prospect of retirement was not met with the specter of poverty" (Pelosi, 2005).

Since its inception, however, Social Security has increasingly come to provide benefits for far more Americans than originally intended. But it also pays benefits to middle-class and affluent Americans "many of whom can live well enough without these benefits" (Peterson, 1996); this is becoming a bone of contention that has an impact on private pensions and pension portability. Both, the critics contend, pander to those who don't need the help.

If Social Security benefits were to be slashed, as was then under discussion by the Bush Administration, it would deprive many Americans of the chance to plan for their retirement future. "Among Social Security recipients whose incomes are under $20,000, Social Security accounts for more than half of the total" (Peterson, 1996). Moreover, it would force millions of others into a demographic depression, eliminating the safety net originally constructed to protect lower-income elderly Americans from devastation and, literally, the poorhouse (Peterson, 1996). For this constituency, retirement portability is not the primary issue; the ability to retire at all is far more pressing.

The problem of retirement income is serious indeed. The first wave of Baby Boomers began to retire around 2008; at that time, they stopped paying into Social Security. Because Social Security is a pay-as-you-go plan — meaning current workers fund current retirees — the ratio of payers to recipients was projected to drop from 3.3 to 1 down to 2 to 1 by 2030. Even by 2018, Social Security was not expected to collect enough to cover annual benefits. "By 2042, money pledged to the program's trust funds will run out completely, according to a Social Security trustee report published in March" (Rafter, 2004).

Logically, then, private pension plans and funds would have to take up the slack — and that was one of the messages in President Bush's push to privatize retirement income funding. However, "A record 35 million Americans and their families are covered by defined-benefit pensions … (and) … despite stock prices that have rebounded from 2000 lows, many plans remain underfunded" (Rafter, 2004). Portability of nothing is still nothing; any discussion of the portability of retirement plans is necessarily limited in scope to a relatively wealthy segment of the population.

Americans who do have private pension plans through their employers are finding those benefits slipping away. In August 2004, United Airlines announced that it would probably end its pension plan as part of a bankruptcy restructuring; that, in turn, put pressure on the Pension Benefit Guaranty Corp., "the government agency that insures pensions for 44 million U.S. workers" (Rafter, 2004). It is notable that the number of Americans whose pensions are guaranteed is approximately the same as the number who lack health insurance — and it is highly unlikely those without health insurance make up any significant part of the pool of Americans with threatened pensions.

Corporate America has preceded the President in pushing the burden of pension risk onto workers. The advent of the 401(k) was doubtless helpful in accomplishing that goal. Companies are now more often offering "more portable defined-contribution plans" than the defined-benefit plans that are much more difficult to translate across various corporate structures. As Rafter (2004) notes, "Some (companies) are dropping pensions altogether." That is not surprising, and might be considered another aspect of ERISA (Employee Retirement Income Security Act), which was known informally as the Lawyers' and Accountants' Full Employment Act, so difficult was it to administer when it first appeared.

Today there are more than 70 million Americans who don't have to worry about these things because they don't have access to any sort of "tax-subsidized payroll-deduction saving plan, and therefore tend to save very little for retirement. As a result, fewer than 60 percent of today's workers aged forty-seven to sixty-four are likely to receive benefits equal to even half their pre-retirement income when they stop working" (Geisel, 2004).

In 1996, Peterson noted that private-sector pension coverage had been flat since the early 1970s, about the time the 401(k) was being born. He thought that it stemmed "from long-term changes in the work force and in the nature of work — part-time work, working at home, multiple careers," a social phenomenon that accelerated after a decade and more of downsizings, offshorings, and layoffs. "As for Americans lucky enough to have pensions, they will be surprised, if not seriously disappointed, by how little their plans have set aside for them: the typical defined-benefit pension plan for average-earning workers with thirty years of service replaces just one third of pre-retirement earnings — an amount that is not indexed for inflation" (Peterson, 1996).

This presents more than one sort of problem. Peterson noted in 1996 that Baby Boomers, especially, were in denial about their retirement income. While almost two-thirds believed they could live where they wanted and live comfortably in retirement, they were terrified that neither they nor their government was saving enough to make it possible. "Some two thirds confess that they've never even calculated how much they need to save for their retirement, and an amazing 86 percent acknowledge that 'future retirees will face a personal financial crisis 20 years from now'" (Peterson, 1996). They know the government has made promises it won't be able to keep, and they also say that individuals should be responsible for their own retirement income — a wish that the Bush Administration was trying to make come true, even if the 401(k) had not been able to make much of an inroad into their retirement savings habits.

Retiring Baby Boomers will need private savings apart from a company pension or Social Security. But market forces will come to bear in this arena. What one household saves in a bank account or mutual fund, another household borrows. "Whenever the stock market or housing prices rise, many households may feel that they're saving enough. But our aggregate personal-savings rate, except for pensions, is now barely positive" (Peterson, 1996). So even those who do have 401(k)s will likely fall short, portability or not.

While 44 million employees enrolled in 401(k)s is a significant number, it is more than counterbalanced by the 70 million who lack them. In fact, it appears that the concept of retirement portability primarily affects the upper class and parts of the middle class; for the working class and the working poor, the idea of retirement portability is as meaningless as portable health insurance is for the roughly 45 million uninsured Americans.

Of course, some low-income workers are able to participate in a 401(k), but the tax incentives are not helpful to them. As Geisel (2004) notes:

Income-tax deductions are worth the most to high-bracket taxpayers, who need little incentive to save, whereas the lowest-paid third of workers, whose tax burden consists primarily of the Social Security payroll tax (and who have no income-tax liability), receive no subsidy at all. Federal tax subsidies for retirement saving exceed $120 billion a year, but two thirds of that money benefits the most affluent 20 percent of Americans.

Despite all that, the 401(k) is called, by some, "the envy of the world" (Calabrese & MacGuineas, 2003). Traditional and 401(k) pension plans have, between them, nearly $7 trillion in assets, and account for the "vast majority of financial assets accumulated by households in recent years" (Calabrese & MacGuineas, 2003). The authors say that the system works well because it offers powerful incentives — tax breaks and employer matching contributions — to encourage individuals to contribute to the plans. Other reasons include the convenience and discipline of automatic payroll deductions, as well as hefty penalties for early withdrawal (Calabrese & MacGuineas, 2003).

This situation presents two very different sociological considerations. First, the high frequency of job change in the United States makes portability of these funds essential. Second, despite their utility, compared to the rest of the globe's government-funded retirement plans, Social Security benefits are very modest, forcing more workers to rely on something in addition to Social Security or risk a devastating old age (Turner, 2003).

In 2002, Johnston wrote that more than 42 million Americans — "one in three with a job" — have a 401(k) to defer part of their income for old age. Moreover:

Survey after survey shows that Americans love their 401(k) plans and, except for the oldest workers, value them more highly than traditional defined-benefit pensions, which pay a lifetime annuity, are largely guaranteed by the federal government, and have been in decline since the 401(k) began two decades ago (Johnston, 2002).

The reasons for this mirror U.S. society, which includes frequent job changes. Traditional pensions pay off only for those who stay with one company for an entire career; those who change jobs and have defined benefit plans find that their benefits are "frozen in the dollars of the year (they) quit, their value eroded by inflation" (Johnston, 2002).

In 1996, many news media commentators were already noting the specter of old-age financial hardship looming for the Baby Boom generation — more than enough time to have addressed the supposed shortfall in Social Security in a more timely manner, and certainly time enough to ensure that retirement portability applied to a plan that might actually do the job for the rising generation of older Americans.

Peterson, writing in the Atlantic Monthly, noted that what concerned him most about the rapid aging of America — with one in every five Americans projected to be over 65 by 2025 — was not that there would be vast cultural and sociological changes to contend with, but that we wouldn't be able to afford it.

Far from advocating a reckless rush to privatize retirement income, Peterson advocates moving to an "endowment ethic" (1996). Endowment, he notes, implies stewardship — the acceptance of responsibility, the factor that "generated America's high savings, high growth, and rising living standards in the past" (Peterson, 1996). Back then, however, all the stewardship was not forced onto one group, the workers. Rather, it was shared by individuals and corporations alike — before the era of the "cash cow," in which corporate managers simply milked companies dry with no thought of stewardship of the company's assets and goodwill, or of the social contract with those who performed its labor.

The Baby Boomers, like their parents, will expect to reap the benefits of a healthy, happy, prosperous old age. But consider this: while the parents of the Baby Boomers were voting increasing benefits for themselves — knowing they had birthed a huge generation to pay the freight — they were simultaneously voting down school bond issues. The result is that the children of the Baby Boom are ill-prepared to pay for their parents' retirement, just as their parents are, even now, paying for their own parents.

The Baby Boomers' babies were few in number as well. One need only cite the statistics for Ph.D.s in the 1970s without jobs but with college loans to pay to understand that phenomenon and its effect both on the Baby Boom's childbearing capacity and on the fact that the early years of that generation's work life were not likely to allow money for socking away into 401(k)s. Especially the younger Baby Boomers, born in 1964, did not even start working until half a decade after the introduction of 401(k)s; at the low-pay end of their careers, they could not take advantage of the plans even when one was offered.

Peterson's commonsense conclusion was that "We cannot sustain the unsustainable. Nor can we finance the unfinanceable" (1996). He predicted that by 2030, when all the Boomers will have reached age 65, annual surpluses in Social Security tax revenues will be negative. The combined cash deficit that year could be as high as $1.7 trillion in 1996 dollars. Clearly, that — combined with the tax cuts of recent years and the cost of sustained military engagement — is not supportable. So, indeed, something must be done.

The problem is that the Bush solution resembles closing one's eyes rather than addressing the alligators in the swamp. While the 401(k) was an attempt to relocate the alligators, it would seem that some of the alligators are too small to be relocated that way, and some swamp draining is also in order. In other words, it seems extremely short-sighted to offer retirement options and portability to people who can't afford basic living expenses, never mind additional mandatory contributions.

Peterson is fixated on the Baby Boomers — a not unreasonable fixation. He is also fixated on fixing Social Security because "Millions of seniors would be destitute without federal benefits," and that will only get worse as the Baby Boomers retire. He argued in 1996 that younger Americans needed to be encouraged to begin saving immediately. A Fortune magazine study found that if a couple at age 40 went to dinner and a movie only twice a month rather than four times, they could add that money to a 401(k) and net "$169,500 for their retirement at sixty-five. Paying off credit-card bills when they come in instead of incurring finance charges will yield another $121,400" (Peterson, 1996).

The 401(k): Promise and Pitfalls

On the seemingly positive side, because 401(k)s come with regular statements, holders know how much they have. Moreover, the funds can go along with the employee to the next job, or the funds can be rolled over into an Individual Retirement Account (IRA). There is also a psychological component: because "So few Americans have ever had financial assets … getting a monthly statement showing shares of mutual funds can make one feel prosperous" (Johnston, 2002). This tends to make workers feel like capitalists "until their jobs disappear and they have to cash in their mutual funds, paying a 10-percent tax penalty, just to feed the kids and keep a roof over their heads" (Johnston, 2002).

In addition, between 2000 and 2002, 401(k) funds plummeted 25 percent; those who suffered the losses are wondering if the 401(k) hasn't been sold as a miracle cure when, in fact, it is much like any other investment based on stocks and bonds — it can go up, and it can go down.

Johnston notes that "The success of 401(k) plans is a triumph of marketing over sound policy, for despite their portability they are inadequate to the task set for them: to provide reliable income in retirement" (2002). Johnston blames this on high fees biting into principal, as well as risk from "kleptomaniac bosses." In addition, usually "they are so heavily invested in employer stock — as in Enron and Global Crossing — as to make them a gross violation of the three basics of investing: diversify, diversify, and diversify" (Johnston, 2002).

Many Americans have never heard that advice, and, in any case, many wouldn't heed it if they could. The book The Great 401(k) Hoax by William Wolman and Anne Colamosca makes this clear. Johnston, in light of it, notes that "the portrait it paints of the investment skills of most Americans raises serious doubts about the Bush administration's proposal to allow workers to invest two percentage points of their Social Security taxes on Wall Street" (2002) — especially given the plans to reduce and delay Social Security payments for that same population.

During the 1980s and 1990s, Wolman and Colamosca argue, there was not simply good marketing at work; there was also a concerted effort to relieve companies of the burden of providing pensions for loyal, long-time employees. They conclude that "The 401(k) typically costs businesses much less than traditional pension plans, and, not surprisingly, leaves many workers much worse off than they would be under the old system, even with several job changes during their careers" (Johnston, 2002).

It is not surprising, therefore, that the wealthiest ten percent of Americans still own 85 percent of all stocks, despite the huge numbers of shares held in 401(k)s. Johnston (2002) notes:

At the end of 1998, half of all 401(k) accounts held less than $16,000. The average balance for people in their sixties was $117,300 — hardly enough to get an elderly couple through five years of retirement, much less 20 or 30 years.

To begin to see that 401(k)s are not a retirement panacea, it is only necessary to know that few workers earn enough to save much for at least the first two decades of their work life. In addition, many also dip into what they have saved when changing jobs (Johnston, 2002) — a practice bound to become more widespread as more companies refuse to pay relocation costs, especially for lower-level employees who can least afford a move but often must relocate to find work at all.

Johnston notes:

The authors (Wolman and Colamosca) go on to show convincingly that no matter how you slice the numbers, the 401(k) is not up to the task of providing a secure retirement income, especially in a world in which half of all women who turn 50 this year are expected to live into their nineties. One key problem with 401(k) plans, as opposed to pensions, is that one must make sure to save enough extra money so the funds do not run out before life does. That requires a large cushion for each individual, larger than in the kind of efficient risk-spreading pool that is a pension fund (Johnston, 2002).

In other words, by shifting all the retirement risk to the individual, 401(k)s force each person — if he or she even has extra income — to choose between a slightly better life now or a secure retirement. Such a Hobson's choice seems a cruel way to handle increasing longevity in an affluent society.

The 401(k) was initially promoted as a supplement to regular pensions, or as a way for smaller employers to help employees they could otherwise not help at all. In addition to letting the employer off the hook, it also deprives the retiree of the protection offered by federal pension guarantees that apply to bona fide employer-run pension accounts.

In a defined benefit pension, funds are set aside in an investment pool to finance benefits, the amount of which are usually calculated based on years on the job multiplied by a percentage of salary in the last five years of the employee's work life. "With a 401(k), the worker typically defers money from his or her paycheck and the company matches a portion of it, most often 25 cents on each dollar saved up to a very low limit, often $1,000 or less for the match." In other words, the 401(k) lets the employer avoid managing funds for its employees' retirement, and the government is also off the hook for guaranteeing outcomes; the worker is left to fend for himself.

Moreover, the stingy $1,000 match does not help the employee very much. Johnston calculates that even if stocks rise an average of 1.9 percent above inflation annually, the $1,000 saved today will be worth only $1,457 twenty years from now. If an individual saved $10,000 annually from age 40 to age 65 — and very few Americans can do that — earning at the rate of 1.9 percent above inflation would yield $305,000 available at age 65, or just a little more than $1,200 per month to spend in retirement.

Munnell, too, noted the theory that 401(k) investors could end up well off. Some simulations have suggested that workers with average earnings could, by contributing steadily to a 401(k), accumulate about $300,000 by age 62. However, simulations are not reality, and studies have shown that "the typical older worker covered by a 401(k) has less than $50,000" (Munnell, 2005).

Munnell notes that employees make many bad decisions. Others who are eligible sometimes don't participate, forgoing the employer match their co-workers are theoretically gaining; usually the reason for non-participation is living paycheck to paycheck with nothing left over. Munnell (2005) also advises that:

Less than 10 percent of those who do participate contribute the maximum, often because of low take-home pay. More than half fail to diversify their investments, many over-invest in company stock, and few rebalance their portfolios in response to age or market returns. As a result, many employees lose their retirement savings by investing their entire 401(k) portfolio in company stock, or end up with minuscule balances at retirement by concentrating their investments in money-market funds.

Wolman and Colamosca believe the 401(k) is a form of Ponzi scheme; "people were lured and continue to be lured into buying stocks at such high multiples of their earnings that many of these 401(k) savers will die before their stocks will grow in value" (Johnston, 2002). This is good for the stockbrokers, good for the employers, and good for the government, all of whom are betting on employees flocking to 401(k)s in fear — being grateful for the paltry matching sums from their employer and ignorant that if the traditional pension were not moribund in most industries, at least their retirement funds would have been guaranteed by the government.

Fees charged by employers to manage the funds also erode value. Exxon-Mobil manages its huge pension fund for less than a nickel of every $100 it invests. By contrast, many 401(k) plans charge as much as $2.40 per $100. "These fees for investment advice, trading, and record keeping are not explicitly stated, however. Instead, they are subtly bundled into the overall annual returns, making them invisible" (Johnston, 2002).

Johnston says Wolman and Colamosca have shown that the requirements of 401(k) plans often restrict investment decisions, including the timing of purchases and sales, in ways that damage returns. "Workers in 401(k) plans typically get a narrow range of mutual fund, bond, and money-market offerings picked by management. They have limited rights to shift assets within these choices and often cannot get out if their investment is in their employer's stock, even if it plummets as Enron's did" (Johnston, 2002). Moreover, many 401(k)s are the worst sort of hybrid between paternalism and self-reliance because "In many plans, workers' voting rights to their 401(k) shares are severely limited. Management can even vote the stock against the wishes of workers in some cases" (Johnston, 2002).

Even if the best of all possible worlds obtained on all those fronts, it will likely take more than 15 years for a 401(k) dollar invested today to double. Bush's proposed plan for privatizing part of a worker's Social Security contributions so they can be privately invested makes even that look good. Half of American workers make $26,000 or less, which, under the Bush plan, would allow them to put just $520 annually into a retirement fund. However, "It takes a balance five or six times that amount for an investment house just to cover their costs …" (Johnston, 2002), meaning the worker would be paying those costs directly, leaving far less than $520 to actually invest.

If even half of these problems are true, it seems prudent to ask: is retirement portability a truly desirable fact of life? Or would most of us — or at least 70 million of us — be better off with old-fashioned employer-funded pensions and Social Security? The repeated studies reported above show that Americans do not save because many of them cannot save; they are living hand to mouth already. Allowing those 70 million who cannot save a dime each year to put up to $7,500 into a "lifetime savings account" is, at best, posturing to change Social Security in some as-yet-unnamed way, and, at worst, another scheme to get even more employers out from under any obligation to care for the employees who have made them profitable over the years.

Johnston believes the best idea — and one that offers portability — is the so-called "cash-balance plan," which provides "a guaranteed income stream backed by the government, and yet are also portable like the 401(k). These could help make pensions work for a nation of job-hoppers" (Johnston, 2002). Cash balance plans "offer the security of employer funding and risk assumption, federal guarantees by the Pension Benefit Guaranty Corporation and required lifetime and spousal benefit options, while also providing transparent account balances, a smooth benefit accrual pattern and enhanced portability for a mobile workforce" (Hammersla, 2004). Johnston notes, however, that a few large corporations used them as cheapskate replacements for their former traditional pension plans, unfortunately giving them a bad name among employees.

Calabrese & MacGuineas (2003) believe "The solution is to give every individual access to a tax-subsidized savings account, regardless of whether his employer sponsors a pension plan." This would be completely portable — a sort of government-facilitated 401(k) in which employee contributions would be matched by refundable tax credits deposited directly into workers' accounts. Tax credits are "simply dollar-for-dollar reductions in the total amount an individual has to pay in income taxes; a 'refundable' tax credit is one that, when it is worth more than what the individual owes in income taxes, pays money directly to the individual." Because it would be a tax credit rather than a deduction, even the poorest workers, who owe no income tax, would "automatically get direct matching contributions to their accounts from the government" (Calabrese & MacGuineas, 2003).

Proposed Reforms and Policy Alternatives

These authors suggest that to create greater incentive for the lowest rungs of the savings ladder, the government should more than match the savings of the bottom half of wage earners. Moreover, they believe this would give employers greater incentive to contribute on behalf of low-wage workers because employer contributions would also be eligible for government matching. They conclude that "Universal 401(k) accounts would inevitably add directly to national saving, since low earners save next to nothing now" (Calabrese & MacGuineas, 2003). An economy with virtually no savings base is a weak economy, so in addition to providing retirement security, this plan would enhance the strength of the U.S. economy. Moreover, because of the matching aspects of the plan accruing benefit to the employer, employers would be well-advised to retain workers rather than dismiss, downsize, or offshore them.

Jason Hammersla, writing in Employee Benefit News, notes that Johnston's favored cash balance plans are now being threatened "by an onslaught of legislation and litigation — measures that may soon threaten all employer-sponsored retirement vehicles" (2004).

Cash balance plans are a hybrid of the traditional defined benefit model and the 401(k). More than 7 million employees participated in about 1,200 hybrid plans; a 2000 Watson Wyatt Worldwide study revealed that almost 80 percent of plan participants "build higher retirement benefits under a hybrid plan than a traditional plan of equal cost" (Hammersla, 2004).

Unfortunately, the Bush Administration called for rules regarding such plans that would make them more burdensome for employers to offer than were the old traditional defined benefit pension plans. It is unlikely that employers, who leaped at 401(k)s as a way out from under defined-benefit pensions, would accept rules even less flexible than defined-benefit rules. Hammersla notes that the result could easily be even fewer employees protected because "employers will inevitably prefer to eliminate or freeze retirement benefits altogether than lock themselves into a scenario of economic inflexibility and increased liability" (2004).

Because some voices have been raised against cash balance plans — notably by older workers with long service who would prefer their defined benefit plan — the legislators have a hook for their opposition. The most outspoken critics invoke claims of age discrimination, a charge based on the July 2003 decision by the Federal District Court for the Southern District of Illinois in the case of Cooper v. IBM. Chief U.S. District Judge G. Patrick Murphy ruled that "cash balance plans — and, by implication, numerous other pension plan designs — are inherently age discriminatory. Even the federal government's own employee retirement plans would flunk the court's standard" (Hammersla, 2004). Ironically, the ruling applied even to plans designed to provide greater contributions for older workers.

Other courts, prior to this one, had clearly noted that cash balance plans do not violate ERISA's age discrimination standards (Hammersla, 2004). However, copycat lawsuits were filed, and the prospect of financial risk sent plan sponsors running for cover. As part of the 2004 omnibus spending bill, Congress included amendments regarding cash balance plans that a University of Chicago law professor and senior Hoover Institution fellow, Richard A. Epstein, described as "substantively and constitutionally unsound," further noting that they threatened the separation of powers by preventing the Treasury Department from issuing guidance and denying the judiciary rightful access to the Treasury Department's views (Hammersla, 2004).

Representative John Boehner, R-Ohio, chairman of the House Education and the Workforce Committee, was attempting to find ways to legitimize the cash balance plans. "Our ultimate goal is to ensure cash balance plans remain a viable option for employers who want to remain in the defined benefit system and workers who prefer the portable and secure benefit this option provides" (Boehner, quoted by Hammersla, 2004).

Hammersla concluded that by trying to discredit cash balance plans with spurious age discrimination claims, the opponents are exposing all pension plans to unwarranted liability. Further, "by misappropriating the appropriations process to further their own agenda, they are abusing the trust placed in them by their constituents" (2004).

Savings transformation. It has already been noted that young people in the U.S. do not save, and in many cases cannot. In 1996, Peterson recommended eliminating government debt, which he assumed could be done by 2002. In fact, Bill Clinton did virtually eliminate deficit spending. However, subsequent administrations spent the country into a deficit; in 1996 the federal deficit was 2.4 percent of GDP (Peterson, 1996), but by 2004 it was 5 percent (Truman, 2004). Despite this, Peterson recommends that citizens "no longer presume on the good will of our children but … demonstrate our good will toward them by moderating excess consumption, which makes us net takers, in favor of investment, which unites us as net givers" (Peterson, 1996).

Institute a means test. It is difficult to justify giving those with private retirement incomes of $50,000 or more per year any sort of government retirement subsidy. Peterson recommended reducing entitlement benefits to all households with incomes over $40,000 — then more than $5,000 above the U.S. median household income — with higher-income households losing 10 percent of all benefits that raised their income above that threshold, and 10 percent for each additional $10,000 in income. "Thus a household with $50,000 in total income and $10,000 in federal benefits would lose $1,000, or 10 percent of its benefits; a household with $100,000 in income and the same $10,000 in benefits would lose $6,000, or 60 percent; a household with more than $120,000 in income would lose $8,500, or 85 percent — the maximum benefit-withholding rate" (Peterson, 1996).

Opponents claimed a means test would "undermine public support for Social Security and other universal social-insurance programs. The theory seems to be that we must bribe the affluent in order to ensure political support for benefits for the needy" (Peterson, 1996). He argued that was wrong, and that even affluent households would support such reform, according to surveys.

Raise the age for receiving full benefits. Peterson recommends a steep rise in the full retirement age, to age 70.

Establish a system like Bush's proposed system. Peterson believed a "fully funded, privately managed and portable system of personal retirement accounts should be mandatory" (1996), at first as a supplement to Social Security, but eventually replacing it. He recommends fully funded accounts to avoid having one generation pay for another, and believes vesting should be immediate so that all workers could take all their savings — theirs and matching amounts — with them as they moved from job to job (Peterson, 1996).

Other countries do it. The United States, although it possesses the "admired" 401(k), does not do as much to secure its citizens' retirements as nations that make saving mandatory but also portable. Among the global examples Peterson cited:

Australia made employee pensions mandatory, increasing coverage from under 40 percent to nearly 90 percent of the workforce. Iceland means-tested its social insurance system. Germany enacted increases in the retirement age, as France, Sweden, Italy, and the United Kingdom were debating. Singapore's Central Provident Fund — the country's mandatory pension-savings system — holds account balances totaling nearly three-quarters of GDP. In South Korea the household savings rate runs at about 35 percent. In Chile, the average worker owns $21,000 worth of assets in the fifteen-year-old national funded retirement system — about four times the average annual Chilean wage. Argentina, Peru, and Colombia are following Chile's lead and setting up funded systems of their own (Peterson, 1996). On the other hand, in the United States, "nothing has been saved in any national retirement system for any worker to own" (Peterson, 1996).

Until the advent of the 401(k), very few pension plans in the United States were portable. The 401(k) did rectify that situation but caused others, notably the pushing down of the entire pension issue onto the employee, many of whom are ill-prepared to handle either the finances and logistics of retirement planning or simply the prospect of putting aside a portion of a very low wage. In addition, although the plans are portable and can be taken to the next job, the next employer may not offer a plan. In that case, disbursement occurs, and some employees — again, notably those who can least afford to retire without some supplement to their low-end Social Security checks — are likely to use the disbursement for current necessities, incurring a tax penalty in the bargain.

It is essential, in regard to the coming Elder Boom, to find solutions not only to the pension dilemma but to the burdens and opportunities that pension portability offers, and to understand how portability fits into the current working and retiring environments.