Sandra Conchar, 27, a community relations manager at Potomac Pizza, tosses… (Ricky Carioti/The Washington…)
The economic downturn is pressing more employers to reduce pension benefits and significantly delaying when people launch their careers, darkening the already bleak picture that young workers face in saving for retirement.
Corporations have been slashing pensions for decades, but such cuts are common now in the public sector, where retirement benefits were traditionally much better. In both cases, employers frequently reach for the same tool — preserve benefits for current employees but make severe cuts for new ones.
As Washington turns in the coming weeks from the presidential election to the long-term debt issues facing the nation, the discussions will center on whether the country can afford programs such as Social Security and Medicare in their current form.
So far, these debates have focused little on how potential cuts in federal benefits may affect retirement for younger generations of workers who already are seeing employers shrink their safety nets.
The confluence of events is creating a dichotomy in the nation’s workforce and a massive burden for the country that will not be fully evident until the next generation approaches retirement.
“We have a looming retirement-income crisis in this country,” said Diane Oakley, executive director of the National Institute on Retirement Security. “The problem is we won’t see the ultimate brunt of it until 30 years down the road when it is too late to do something about it.”
Young workers are having little or no say in any of this, but the changes will affect them most.
“How the hell do I get ahead?” said Sandra Conchar, 27, director of community relations at Potomac Pizza, a local restaurant chain. “And retirement? Oh, God.”
Blue-chip corporate giants such as IBM and Verizon are among those that have closed their traditional pension plans to new workers in order to limit future liabilities. Meanwhile, public workers in states from Rhode Island to California have seen pension promises scaled back as governments struggle to reduce debt.
As it is, most workers are vastly underprepared for retirement. Although coverage is near universal among the small minority of workers employed in the public sector, just over two in five private-sector workers between ages 25 and 64 are covered by pensions or 401(k)-type retirement plans in their current jobs, according to Boston College’s Center for Retirement Research. On average, workers in their prime working years have a retirement funding gap of $90,000 per household, the center has found.
The share of workers covered by traditional pensions has been dwindling since the 1980s, and now the plans are a cherished rarity for young workers.
Adding to the challenge, the recession forced many young workers to launch their careers later, which reduces their earnings — and their ability to save for retirement — in ways many are unlikely to overcome, analysts say.
Even as the labor market slowly improves, the prospects for young workers remain difficult. More than half of recent high school graduates are underemployed, as are nearly one in five recent college graduates, according to the Economic Policy Institute.
Young workers “are starting later and more precariously than before,” said John Schmitt, a senior economist at the Center for Economic and Policy Research. “Imagine you are postponing your career three or four or five years, then afterward you spend 10 years drifting in and out of low-paying jobs without benefits. It could be that you are, relative to someone a generation older than you are, 10 or 15 years late pulling yourself together for retirement.”
Financial planners have long compared retirement security to a three-legged stool supported by Social Security, personal savings and employee pensions. But that stool, never sturdy for many Americans, has grown even more unsteady in recent years.
As employers shy away from the financial risk of funding their workers’ retirements, the share of private-sector workers with pensions that pay a guaranteed benefit has been in sharp decline.
Fewer than one in three workers had defined-benefit coverage in 2010, down from 44 percent in 1995 and 88 percent in 1983, according to the Center for Retirement Research.
In addition, one-fifth of the workers in private-sector pensions and 10 percent in public-sector plans have had their benefits frozen, meaning their benefits are no longer growing or their plans are no longer accepting enrollees, or both.
The changes already are hitting retirees. Just 42 percent of people 60 and older had income from a traditional pension plan in 2010, down from over half in 2003.
“We expect that number will continue to fall,” Oakley said.