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The Hidden Costs of Pension Reforms

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The Hidden Costs of Pension Reforms

Rising Income Inequality, Lagging Economic Growth

NCPERS,

5 min read
3 take-aways
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What's inside?

US pension reforms have contributed to an increase in inequality and economic malaise.

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Editorial Rating

8

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  • Eye Opening
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Recommendation

That old refrain about the rich getting richer and the poor getting poorer describes the pension system in the United States. And that system is changing for the worse, according to pension experts Michael Kahn, Robert Kuttner, Teresa Ghilarducci, and Keith Brainard. They find that most Americans must dip into their retirement savings and go into debt to fund current consumption, while those at the very top prosper. Their erudite analysis explains how pensions affect economic inequality, consumption, and the overall economy to worryingly negative effect.

Summary

Misperceptions about pensions’ roles in the economy inform policy debates.

A simplistic, misguided view of the role of pensions holds that they benefit plan participants exclusively and that taxpayers, states, and local entities bear their costs. In reality, public pensions help support local economies and raise tax revenues to fund public education.

The trend in pension reforms, especially in private industry, has been a shift away from defined benefit plans — which pay a set amount to retirees — to defined contribution plans, to which workers must contribute. The public sector has experienced benefit reductions, a change of contributions from employer to employee, and the elimination of eligibility for...

About the Authors

Michael Kahn, PhD, is the director of research at the National Conference
on Public Employee Retirement Systems (NCPERS). Robert Kuttner is a professor at Brandeis University and the co-founder and co-editor of The American Prospect. Teresa Ghilarducci is a professor at The New School for Social Research. Keith Brainard is the research director at the National Association of State Retirement Administrators.

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