FROLITICKS

Employer pensions are not what they used to be.  An analysis done back in 2016  found that just 99, or about 20%, of Fortune 500 companies offered a “defined benefit plan” to new salaried employees in 2015.  This was down from 104 companies, or nearly 21% in 2014, and a dramatic fall from a decade earlier in 2005, when 248, or just over 48% of Fortune 500 firms had such plans.  Defined benefit plans provided pensioners with specific annual amounts of funds from a company pension following their retirement.  Instead, most companies began to offer “defined contribution plans”, leaving it up to employees to invest for their retirement through various financial institutions.  In 2022, the U.S. Labor Department reported that while 72% of civilian workers had access to an employer-sponsored retirement plan, only about 56% took part in one.  Many other Americans without company pension plans have been forced to invest in a 401(k) (today’s No. 1 retirement vehicle in the U.S.) or other kinds of retirement savings.  The problem is that less than half of working Americans have access to a 401(k) plan.  Many who have a 401(k) at work opt not to participate, and many who do contribute often don’t save enough.  On top of which, many seniors with 401(k) accounts were negatively hit by the Great Recession.  A whopping 36 percent of Americans have less than $1,000 saved for retirement.  As a result, Americans hitting retirement today frequently depend on Social Security as their only source of income, which wasn’t the program’s original intention as a supplemental plan.

In its annual retirement survey in 2007, the Hartford Financial Services Group Inc. revealed that many middle-aged and older adults have serious concerns about their financial security in retirement and are doing almost nothing to shore up their finances.  As a result, the survey indicated that many people plan to “continue working in some capacity while retired,” including one of every two workers in the U.S.  The number of elderly Americans living in poverty is on the increase, particularly following the impact on employment during the pandemic.  Those 65 or older usually weren’t eligible for as much pandemic relief as families with children, thus eating further into their savings.  By 2020, the figure for elderly Americans living in poverty had fallen to 9.5%.  However, in 2021, even as the poverty rate sank for everyone else, it rose among seniors to 10.7%.

In 2009, it was estimated that only about one-third of working Canadian adults have pensions, the majority of which are administered by funds that have taken substantial financial hits with large, unfunded liabilities.  As in the U.S., Canadian companies are relying more heavily on defined contribution plans to lower their human resource costs.  Many elder Canadians have come to rely on government programs such as the Canada Pension Plan (into which they have to pay premiums while working), along with Old Age Security and Income Supplement payments for lower income older individuals.  Although partially indexed to inflation rates, payments under such plans have fallen behind recent cost of living increases.

According to the Organization for Economic Cooperation and Development (OECD), although today’s share of elderly people officially below the poverty line in the U.S. is low by historical standards, it remains among the highest in the developed world, including Canada.  Furthermore, today’s hyperinflation is further cutting into the incomes of seniors in both countries.  In addition, with fewer workers accessing company retirement plans, there is an increasing concern that younger workers may not be saving enough for their future retirements.  Experience has shown that they cannot rely solely on social security payments to live comfortable and active retirement lives, without having to remain in or re-enter the labour force.  Both countries have a growing aging population, led by more and more boomers leaving employment to enter into retirement.  Given that elder poverty is on the increase, one has to question what will be their quality of life after retirement.  What we need today are longer-term solutions, and not small short-term “band-aid” increases in government pension schemes or random handouts.  What we don’t need are governments willing to reduce current high levels of fiscal debt on the backs of seniors.  Companies as well need to attract and retain workers with better funded retirement benefits. 

Moreover, how we treat the elderly is a societal issue!  It’s obvious that as a society, we are indeed at a crossroads when it comes to this important issue.  Given the financial circumstances of most millennials and generations Y and Z, one cannot expect that they will be in a meaningful position to help their parents financially.  Given the projected growth in the proportion of seniors falling on or below the poverty level, there is an immediate serious need for governments, communities and individuals to come to grips with the problem.