Magazine article Management Review

Heads, You Lose. Tails, You Don't Win

Magazine article Management Review

Heads, You Lose. Tails, You Don't Win

Article excerpt

Seventy-six million Baby Boomers planning to retire ha the next decade will have a devastating effect on the nation's pension and retirement system unless changes are forthcoming soon.

This is the dire warning from a recent report issued by the Committee for Economic Development (CED), a group of 250 senior corporate executives and university presidents.

"America's retirement system is underfunded, overregulated and soon to be challenged by unprecedented growth in the retirement-age population," said Lawrence A. Weinbach, managing partner and CEO of Arthur Andersen & Co., who chairs the CED subcommittee examining pensions.

Boomers are expected to boost retiree rolls from 12 percent to 20 percent of the population by 2030. The ratio of workers to retirees will drop from about 3.4 workers per retiree to about two workers per retiree. The report, Who Will Pay for Your Retirement? The Looming Crisis, says that if current systems are left alone, the nation will face two equally calamitous choices: dramatically reduced living standards for retirees or unendurable tax burdens on working Americans.

The report says that over the past 10 years, Congress has eroded employers' ability to develop and maintain employee pensions. This, coupled with the fact that the typical worker is saving only about one-third of what is required for adequate retirement, is a debilitating situation.

Due mostly to government restrictions, total private pension contributions declined in constant 1987 dollars from $1,470 per employee in 1985 to $1,140 in 1991. The employer segment declined in real terms from about $1,039 per worker in 1980 to about $506 in 1991. Moreover, underfunding of private pensions has been conservatively estimated at $71 billion in 1993, and state and local pension plans have been estimated to be only 80 percent funded.

The report goes on to say that Social Security cannot honor its mandate to future retirees without vastly improved prefunding or significantly higher taxes. If no changes are made, combined Social Security and Medicare taxes could take almost 28 percent of an employee's paycheck by 2030.

The CED says that this distressing picture could brighten considerably if coordinated action is taken quickly. …

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