When Atlanta Police Said "No Way" to Mayor's 401(k)

401ks are the biggest investment fraud ever perpetrated upon workers. It ought to be a crime to call them “retirement” plans.

Across the country, states and cities are seeking to reduce pension benefits promised to public employees and force workers into 401(k)-type plans that provide less retirement security.

In April, 2011, over 200 Atlanta police officers jammed into a Committee Room at City Hall for a workshop held by the Finance Committee of the City Council. By the end of the four and a half hour marathon session, hundreds of other city employees had lined the corridors watching the closed circuit broadcast on television monitors throughout the building.

The workshop was an opportunity for the police to present their response to a pension proposal by then-Mayor Kasim Reed which had been introduced as a legislative ordinance by counsel.  I was one of three experts asked to speak on behalf of the police and I spoke specifically about the 401(k) aspect of the proposal.

In case you missed it, across the country, states and cities are seeking to reduce pension benefits promised to public employees in response to looming budget deficits. Taxpayers, who are awakening to the magnitude of the shortfalls in their own private sector retirement accounts, are enraged that public employee retirement benefits seem superior and are guaranteed.  

“We are on the precipice of the greatest retirement crisis in the history of the world,” I began my comments to the City Council by saying.

“In the decade to come, we will witness tens of millions of elderly Americans slipping into poverty. Too frail to work, too poor to retire will become the “new normal” for elderly Americans.

If you don’t believe me, watch to see who’s bagging your groceries. It used to be high school kids. Now it’s men and women in their 70s.”

“We are on the precipice of the greatest retirement crisis in the history of the world. In the years to come, we will witness tens of millions of elderly Americans slipping into poverty. Too frail to work, too poor to retire will become the “new normal” for elderly Americans.

I explained to the City Council that 401(k) defined contribution plans are largely to blame for this foreseeable tragedy and forcing public employees into 401(k)s will only ensure greater misery.

“401(k)s cannot and will not provide meaningful retirement security for the overwhelming number of workers and certainly not the public employees of the City of Atlanta.”

Notice that I did not refer to 401(k)s as “retirement plans” in my comments. That was intentional. 401(k)s were never meant to be retirement plans. They were initially envisioned as a way for management-level people to put aside extra retirement money -- money in addition to their pensions -- like 457 deferred compensation plans for government employees that rely primarily upon pensions for their retirement security.

Soon the 401(k) was embraced by big corporations in the 1980s as a replacement for costly pension funds. Large companies were able to transfer the burden of funding employees’ retirement to the employees themselves. All the major employers jumped on the bandwagon. The vision of creating a nation of astute portfolio managers, each responsible for successfully directing his own investments took hold.

Unfortunately, things didn't quite work out as well as the mutual fund companies promised. Starting in 2006, many of the largest employers in the world began to be sued for their allegedly mismanaged 401(k) offerings, including Lockheed Martin; Boeing; Northup Grumman; General Dynamics; Deere; Edison International; Bechtel; ABB and Walmart. 

It’s long been known that 401(k)s were failing. According to a 2010 survey, 84% of Americans said it was time for new, improved workplace retirement plans. 84% -- that’s a staggering dissatisfaction rate.

As I've said began writing decades ago, 401ks are the biggest investment fraud ever perpetrated upon America’s workers. I believe it ought to be a crime to call these plans “retirement” plans. Call them savings plans or rainy day accounts but don’t call them retirement plans and mislead workers into believing that 401ks will provide for their retirement security.  They won’t.  

"So if you do vote to force your city’s public employees into a 401k-type system, at least be honest about it and admit from the get-go that this is no retirement plan,” I concluded my remarks to the City Council by saying.  

This was hardly the time to be moving workers into a defined contribution retirement scheme that 84% of the nation even then regarded as a catastrophic blunder.

In conclusion, if you’re a state or local government worker when (not if) a proposal is made to replace your pension benefits promised with a 401(k)-type plan which—you are promised—will be “every bit as good,” fight like hell. 401(k)s cannot and will not provide meaningful retirement security for the overwhelming number of workers and certainly not public employees who were promised pensions.