Back in March, we wrote about how high levels of student loan debt are decreasing retirement security for many Americans. A report from the Center for Retirement Research at Boston College had found that current levels of student loan debt had significantly increased the risk of having inadequate income in retirement for many households.
Recently our Executive Director, Bailey Childers, wrote in the Huffington Post about this issue. As she said:
“The decrease of retirement security, along with the rising threats of high student debt, will continue to erode the economic certainty of our young people until we prioritize turning things around. The solution will surely be complex, but the first step needs to be the serious reconsideration of whether the move away from defined benefit pensions was a good one for the overall future of the American people.”
Pensions provide a safe and secure retirement for working families. Workers contribute a portion of every paycheck toward their pension, but their employer contributes toward the pension as well and the majority of revenue for a pension fund comes from investment returns. All of these are advantages over a 401(k), where employers are not required to contribute and individual employees must manage their own investment decisions, even if they lack expertise or any real knowledge in that area.
Furthermore, enrollment in a pension plan is typically automatic and mandatory, whereas participation in an employer-sponsored 401(k) plan is optional. Additionally, employees must choose their contribution levels for a 401(k)- and they may contribute a lower amount if they are feeling pressured to pay off their student loans. All of this adds up to a scenario in which a young worker, faced with high levels of student loan debt and no knowledge of financial planning and investing, may choose to contribute only 2 or 3 percent of their pay toward their 401(k)- and may leave it that way for years, accumulating little in true retirement savings.
If that young worker in our hypothetical scenario worked for an employer that offered a defined benefit pension, they would have been automatically enrolled in a professionally managed retirement plan to which their employer would have contributed a percentage of their pay. That young employee would not have to worry about making investment decisions and could instead focus on working hard and paying off their student loan debt, knowing that a secure and reliable pension would be waiting for them at the end of their career.
As the Class of 2016 enters the workforce and the presidential candidates offer solutions to the problems facing the country, we must demand that our political leaders offer solutions to the retirement crisis: not just the one looming for Baby Boomers on the verge of retirement, but also the one facing young workers who encounter increasing obstacles to saving for retirement.