The American Retirement Industry

Retirement plans used to function as a social safety net, diffusing the cost of each elderly person, such that individual retirees and their families were responsible for a smaller share of that cost. This was primarily during an era of economic growth, in which the functions of the state-corporate oligarchic complex expanded to include large expenditures in projects deemed necessary to ensure the general conditions required for capital accumulation. One of these general conditions is the reproduction of labor; “subsidizing” the cost of elderly people was necessary for this end, as otherwise those costs would be transmitted to laboring relatives and thus increase the cost of labor itself (or threaten the reproduction of labor).

Another trend emerged around 1980, after more than a decade of economic stagnation and failed Keynesian policies. As capitalists struggled to turn out a profit, they thought of ways to transfer the costs of the general conditions for accumulation (which had ballooned by this point) onto the workers, in a way that did not threaten their ability to reproduce their laboring population. In part, this involved a search for cheaper labor in other parts of the world, as well as major cuts in government services (to be substituted by the rise of private industries in search of profits) and suppression of wage growth and benefits in the United States.

As part of this trend, a major shift in the retirement industry occurred. The “defined benefit” or pension plans, in which the employer provides income for its retired employees, started to become obsolete in favor of plans that required employees to set aside portions of their own income, thus shifting the burden for retirement from employer onto employee. This is a salary reduction, of course, but: 1) generally the amount of the reduction is small enough to be almost imperceptible on a short-term basis; and 2) one usually works for more years than one is retired, so the amount that a person sets aside for their own retirement in a year is far less than what would be expended for the care of an elderly relative during the same period of time. In the long run, employees are absorbing far more the costs of the general conditions for accumulation, and this does add a degree of instability to the system, but in the shorter term it does not generate any immediate or cataclysmic results.

Another aspect of the post-1980 political/economic trends is the changing focus from material-productive activity to financial-speculative activity as a means of generating wealth (this is, in fact, a historical pattern for periods of economic stagnation). In fact, every period of economic growth in the U.S. and abroad (with the exception of some “semi-peripheral” nations such as China) since 1980 has been merely a speculative bubble of one sort or another. Changes in the retirement industry reflect these circumstances. Many of the newer types of retirement plans involve stock options and profit sharing. This means that money set aside for retirement, whether deferred by the employee or contributed by the employer, is invested. Retirement plans are, in this sense, a means of creating demand for corporate stocks. (Not to mention the mass of well-paid financial advisors that it necessitates!) The rationale for plans in which individual accounts are comprised entirely of employer stock is often explicitly stated to be a way in which the employer can expand the market for its own stock. Yes, things generally go better for employees when things go better for the company, but still, employers are using their employees beyond what is stipulated by the terms of their employment, and potentially putting them at risk.

Not only do profit-sharing and stock option plans shift the burden for retirement off of the employer, but they also create the possibility that employees will lose all of their retirement money - clearly a dangerous situation. In this case, corporate/financial interests profit at the direct expense of the workers. (Could we say, a redistribution of wealth?)

It will be interesting to see how things pan out, particularly with expected to cuts to social security and medicare. It could very well be that we are sowing the seeds for crisis.