After World War II, most employees in America were covered by pension plans. No longer.

Pension plans were “defined benefit” plans, meaning the plan would owe you a monthly pension you could be certain of based upon your years of service to your employer.

In 1970, for example, over 26,000,000 private sector workers (45% of all private sector employees) were covered by some kind of pension plan.

An example of a defined benefit pension plan is the NY State & Local Retirement System. Under this pension plan, any State, county, city, town or village employee (not police or fire or teachers) with 30 years in the system, for example, will get 2% of final average salary times 30 years or 60% of final average salary, as their annual retirement amount.

If the public employee has a final average salary of $50,000, for example, their retirement will be 60% of that or $30,000 per year guaranteed by New York State.

By 2022, according to the Bureau of Labor Statistics only 15% of private industry workers had access to an actual pension plan.

American employers, over the last 40 years, have turned away from pensions for their employees and have substituted generally inferior 401 (k) plans.

By coincidence overall union membership in the United States peaked in 1970 with about 17,000,000 union workers. By 2002 union membership had been cut in half.

Unions, bolstered by the National Labor Relations Act of 1935 under President Franklin D. Roosevelt, negotiated for pensions that, together with FDR’s Social Security benefits, would make a decent, secure, retirement possible for unionized workers.

The union movement was dealt a crushing blow in 1981 when President Ronald Reagan fired 11,000 striking air traffic controllers out of the 13,000 the union represented. President Reagan used replacement workers for the fired union members. Not a single fired air traffic controller was ever rehired.

Owners of businesses across the nation followed Reagan’s example and engaged in “strike breaking.” Employers realized they could legally fire striking union workers and replace them with non-union workers.

With fewer unionized workers and weaker unions, employers were emboldened to eliminate employer-provided pensions in favor of cheaper 401(k) plans.

401(k) plans were created by Congress in 1978. Employers could contribute a percentage of their employee’s earnings into a retirement account and their employees could contribute a similar amount income tax deferred until drawing out the money at retirement.

Unlike traditional pensions, however, 401(k) plans have no guarantee of any certain amount in one’s retirement years.

Traditional pensions guaranteed what would be paid out to a retired employee. 401(k) plans guarantee only what is paid into the employees account.

In theory, if employers contributed enough into a 401 (k) and if employees matched that contribution, retirees could live a life style similar to when they were working. To achieve a secure retirement income, however, many retirement experts recommend that between 10% to 15% of the employee’s income be contributed toward the employee’s 401 (k) each year.

If an employee is lucky and the employer offers a 5% contribution to a 401 (k) and if the employee also contributes 5%, the minimum 10% would be achieved.

A CNBC survey found, however, that 40% of workers contribute nothing to their employer’s 401 (k) plans.

Furthermore, many employers contribute only 3% or 4% to the 401 (k) for their employees. Low employer contributions to 401 (k) s and low or no contribution by employees explains why the average account balances of 401(k) participants are so low.

The huge investment firm, Vanguard, found in 2022 that for workers 55-64 the average 401 (k) account balance was $208,000, but the median account balance was only $71,000. That means half of workers 55-64 with a 401 (k) plan only had $71,000 or less in their account.

No retiree is going to have a secure retirement on Social Security plus $3,500 per year (5% of $71,000, 5% being a relatively high withdrawal rate) out of a 401 (k).

Citizens Bank, one of the nation’s oldest and largest financial institutions, recommends that by retirement age a worker should have in the worker’s retirement account 10 to 12 times the worker’s income while employed. With a $50,000 income, therefore, a worker dependent on a 401 (k) should have at least $500,000 in the worker’s retirement account.

Together with the average annual Social Security benefit of about $20,000, a worker could withdraw a conservative 4% a year from the $500,000 401 (k), or $20,000, for a total retirement income of $40,000 a year or 80% of the income while working. 80% of a worker’s income allows for a “seamless transition” to retirement, according to Citizens Bank.

Congress could address this looming retirement crisis for millions of workers. Congress could require all employers with more than 50 employees, for example, to contribute at least 5% to their 401 (k) plans. Employees who match that 5% would achieve the minimum recommended 10% of total wages saved for retirement.

Let us act now through financial education of younger workers and through Congressional action to prevent future generations of workers having a poorer retirement life than past generations have had.

Fred Larson is a graduate of the Princeton University Woodrow Wilson School of Public and International Affairs and the Yale Law School who was in private law practice in Jamestown for 38 years. He is a member of the Chautauqua County Legislature.