Group Seeks Answers For Retirement 'Crisis'; High Jobless Rate Intensifies Issues

When Vise-Grip closed its plant last year in DeWitt, Neb., and moved it to China, Anita Oltmans lost her job. With no job, federal law prevented her from continuing to contribute to her 401(k) plan. She watched her account spiral down as the stock market crashed.

"They closed the doors on Halloween of last year," says Oltmans, 40, who worked in assembly at the plant and is now in college. "Before that happened, I was happy with what I had saved for retirement. But now, it's very scary."

Congress created the 401(k) in 1980 to supplement company pension plans. But with pension plans no longer offered to all workers or frozen, millions of Americans, such as Oltmans, have been relying solely on 401(k) plans to fund retirement. Others -- nearly one-third of American households -- don't have any retirement savings, according to a McKinsey & Co. report. And only 4% of middle-income married couples who don't have a pension and are nearing retirement are likely to have enough money to last their lifetime, according to a new report by Ernst & Young.

America faces a retirement crisis, says an influential group of organizations that have started a new retirement initiative called Retirement USA. Wednesday, the group meets in Washington, D.C., to begin searching for solutions.

Retirement USA was launched last March by the Economic Policy Institute, the National Committee to Preserve Social Security and Medicare, the Service Employees International Union and the Pension Rights Center. The coalition has grown since, adding the AFL-CIO, the National Caucus and Center on Black Aged and the National Consumers League, among others. The group's goal is to create a new retirement system that works in conjunction with Social Security and existing plans.

"We're not under an illusion that this will happen overnight," says Karen Friedman, policy director of the Pension Rights Center. When the group comes up with a retirement proposal, it will need congressional support.

Members agree that the retirement system must be universal, secure and able to ensure that all will have a reasonable standard of living after they stop working. The current system does not meet those basic needs, they say.

Millions of retirees are barely surviving financially, says Retirement USA. Nearly 24% of Americans older than 65 have incomes below the poverty threshold, according to the Organisation for Economic Co-operation and Development. And the United States, Ireland, South Korea and Mexico have the highest old-age poverty rates among the 30 OECD countries.

"I feel we're watching a slow-motion train wreck," says Steve Bartlett, president of the Financial Services Roundtable, which represents large institutions, such as Citigroup, Allstate and Fidelity. "It's pretty clear that with the current trend, the country's Baby Boomers and the next generation will not have enough money to retire."

O(k), or not O(k)

The 401(k) is clearly the center of the retirement storm. Some consumer advocates say the 401(k) is a failure that should end. Others, especially financial industry representatives, think 401(k) plans are still the best retirement option and they simply need shoring up. Retirement USA wants to keep the best parts of the current system and add to it.

Bartlett says 401(k) plans are now the retirement reality and should be quickly strengthened. The Roundtable is not part of Retirement USA, but it has recommended a number of improvements, including increasing access to retirement savings plans for small-business employers. "Every day that we delay makes it harder," he says.

Proponents say 401(k)s are good because they're easy to contribute to, they provide tax breaks, and they are portable from job to job. And if an employer offers a company match to an employee's contributions, even better, says Jane White, author of America, Welcome to the Poorhouse.

Many workers who have stayed at one job for years and consistently contributed to 401(k) plans have been able to build decent nest eggs. To urge more workers to start saving for retirement, about half of midsize-to-large employers provide automatic enrollment to 401(k) plans, up from 44% in 2008, according to a 2009 Hewitt Associates survey.

But companies have cut costs due to the recession and have not spared 401(k) plans, often slashing or eliminating contribution matches and not offering automatic enrollments.

Not a panacea

Statistics also show that 401(k) plans don't serve everyone well, and that those who use them often make big investing mistakes, including cashing them out early.

Many workers -- especially women, Hispanics and African Americans -- don't contribute to a 401(k) plan at all. Only 41% of Hispanic workers say they save money for retirement, and only 25.6% are covered by employer-sponsored retirement plans, according to a new study by the Hispanic Institute, a non-profit organization.

"It's a grim reality," says Dr. Yanira Cruz, president of the National Hispanic Council on Aging.

Not all 401(k) plans provide good options. Although they are voluntary savings plans, employers choose the menu of investment vehicles.

Those who do contribute to such plans often get subpar investment returns and make bad decisions.

Marshall Goldsmith, 41, a customer care representative for American Hotel Register in Las Vegas, says he stopped contributing to his 401(k) plan and instead contributes to an IRA.

One reason: "Not one of the funds is in positive numbers, even since the market improved in the last couple of months," he says. His company also has dropped its matching contribution.

Many workers agree with Goldsmith: A recent AARP survey found that 29% of workers ages 45 to 64 had stopped making retirement contributions. About 18% of workers in the same age group have withdrawn funds from their 401(k) plans in the past year, either taking loans or cashing out.

A change of perspective

For many people, trying to determine when they might be able to retire and how much they will need is simply a vexing question.

Throw in rising unemployment, the stock market meltdown and the drop in some company matches, and it becomes all the more confusing.

Mark Heup, a commodity manager in Baltimore, doesn't have an overall retirement strategy. He lost his job in February, and his wife, Julie, a structural engineer, lost her job last November. They are both 41 and have a son, Matthew, who is 4.

Although they started new jobs in June, albeit in different cities, they're worried about their retirement future. Before they lost their jobs, they had not been contributing the maximum amount to their 401(k) plans.