[A-List] The Coming Collapse Of American Retirement

["Charles Brown" <CharlesB@xxxxxxxxxxxxxxxxxxxxx>]

The Coming Collapse Of American Retirement

by Nicholas von Hoffman

"J.P. Morgan, no enemy of wealth, once said that a reasonable ratio of 
management pay to that of the average worker would be 20 to 1. But in the 
U.S. business today, it is 500 to 1," quoth Peter F. Drucker. The 
92-year-old Drucker, whom business reveres as its most respected student and 
thinker, did not make the remark out of admiration for managers, but 
disgust.

Whenever the question of disproportionate compensation for managers is 
broached, the increasingly vindictive editorial voices on the right start 
their banshee squawking about class warfare. (We should only be so lucky to 
have a dollop of old-fashioned class resentment in our politically supine 
electorate!) Class warfare doesn't exist in the United States in any way, 
shape or form-just a mewling about "fairness," a milksoppy word that 
reactionaries rightly jeer at. Screw fairness. Leave that to those 
politically correct pedants who spend their lives writing monographs about 
the transformation of gender roles on the Northwest frontier.

The first thing that pisses people off about the gigantic compensation 
awarded corporate executives is that it's so insulting to the rest of us. In 
a society where you're worth what you're paid, it's a slap in the face of 
the millions who do the necessary and indispensable work of daily life to be 
told, in effect, that their labor, their efforts, their accomplishments are 
next to worthless. The Brobdingnagian paychecks managers have gotten for 
themselves have created more anger as people, in the wake of the Enron 
disgrace, realized how the company's managers-their guts stuffed with money 
not properly theirs-had left the ordinary employees face-to-face with a 
penurious old age. It has brought home as nothing else how mediocre, how 
incompetent, how antisocially selfish, how incapable so many of these 
overpaid rotters are. And they are scarcely the only ones. In ordinary 
business, on Wall Street, in sports and entertainment, there are men and 
women who only stand out because of the fatness of their paychecks. The 
millions who do their jobs better-whose jobs are often more important and 
necessary-look at this spectacle and ask each other, "What the hell are we?" 
The salaries paid to the nation's corporate managers (I exempt from this 
effusion those who made their money like Bill Gates) are an insult to the 
worth and dignity of the millions who do the indispensable tasks and get 
paid literally one-hundredth to one-thousandth of what the 
executive-suite/private-jet bums get. People see these stories and feel as 
if they'd had their noses rubbed in dog poop.

The second thing that pisses people off is the haunting suspicion, 
reinforced by Enron, that they will have little or no retirement. The Enron 
collapse has been the event which has finally made many take a suspicious 
look at the 401(k) or defined-contribution retirement program waiting to 
take care of them in their old age. More or less the same thing happened at 
Polaroid when it went down. Polaroid not only prevented its employees from 
selling the company stock in their 401(k)'s, it made them buy the stuff. At 
the time of bankruptcy, the employees were left holding 17 percent of the 
company's stock. Similar stories can be told of what happened to Global 
Crossing, Lucent and Kmart employees.

Wall Street and the politicians on its payroll have been telling everyone 
who will listen that the problem with 401(k)'s is the lack of diversity in 
people's investment portfolios. Some rocks-in-the-head Democrats want to 
pass a law preventing people from owning more than a certain amount of stock 
in the company they work for. And what if the company's stock is golden? 
Andrew Carnegie, no slouch in these matters, is reported to have said there 
is nothing wrong with putting all your eggs in one basket as long as you 
watch the basket. The nub here is not diversity of investments, but bad 
investments.

A professor at New York University, Edward N. Wolff, has been looking into 
how good or not so good these retirement programs are. His findings confirm 
the fear that Enron may be the least of our problems. He figured that the 
retirement wealth of the average family had dropped about 13 percent in the 
15 years prior to 1998. What with the subsequent stock-market slide, there's 
no reason to think that things have improved in the last three years. If you 
throw in Social Security and the value of the real estate the family owns 
and subtract the debts, on average families on or near the cusp of 
retirement will have 17 percent less money for their golden years than those 
in that age group once did.

The top 5 percent of heads of households did better. Their retirement wealth 
grew by a modest 176 percent. It's surprising they haven't gotten more, 
given how tax and retirement rules are built to favor them. Company 
contributions to 401(k)'s-usually a fixed percentage of income-will give the 
top dogs the same kind of 500 to 1 advantage that Mr. Drucker was 
complaining about. It also doesn't hurt that the payroll tax for executives 
making anywhere from $2 million to $200 million is applied to 1 percent or 
less of their incomes.

Based on the professor's figures, 70 percent of families could once look 
forward to a retirement income of half or more what they'd been making. That 
number is now down to 57 percent, but that's not the whole story. Even with 
their Social Security checks, only a fraction of our households-just a 
quarter of them-will have monthly incomes over $1,000.

Let's hope the professor is erring on the side of pessimism, but he can't be 
wrong by very much. We know that the Social Security system will be going 
into the red in 14 years; we know that private-sector pension plans are 
either disappearing or going into bankruptcy. We know that a 401(k) is as 
much of a crap shoot as a retirement program. The only sure thing about it 
is the brokers' and management fees.

On the other hand, if you're only worth one-five-hundredth of 1 percent of 
the C.E.O. who took your company into bankruptcy and destroyed your 
retirement, what do you think you have a right to expect?

You may reach Nicholas von Hoffman via email at: nvonhoffman@xxxxxxxxxxxxx