Opinion: America’s broken retirement system

Editor’s Note: Scott Klinger is the senior equitable development specialist at Jobs With Justice, a nonprofit advocacy group. He has worked in the arenas of corporate social responsibility for three decades. The opinions expressed in this commentary are his own. View more opinion on CNN.

For the past two years, higher prices have made life harder for working families and retirees. But today’s cost-of-living woes may only be the tip of the iceberg. America’s retirees and those approaching their retirement years face deep uncertainties about their golden years.

Indeed, just 64% of American workers feel at least somewhat confident that they will have enough money to comfortably live in retirement, according to the 2023 Retirement Confidence Survey, published by the Employee Benefit Research Institute and Greenwald Research.

The survey, which has been conducted annually for 33 years, found that the decline in confidence since 2022 was the most precipitous since the 2008 global financial crisis. Of those not feeling confident in their retirement security, four in 10 workers reported it was because they had little to no savings.

While America’s workers struggle to save for retirement, their CEO bosses are continuing to hoard wealth, deepening the retirement divide in the US. Among S&P 500 CEOs with company-provided retirement benefits, their average account was $19.4 million at the end of 2021, according to a new report by the Institute for Policy Studies and Jobs With Justice, which I co-authored.

If these CEOs invested their retirement bounty in an annuity, they would receive a monthly retirement check of nearly $111,000, according to Jobs With Justice analysis. Meanwhile, the median value of workers’ 401(k) plans invested with Vanguard was just $33,472, which would yield a monthly check of about $200 to supplement Social Security.

About 40% of America’s retirees rely exclusively on Social Security, according to a 2020 study by the National Institute on Retirement Security. The average Social Security monthly check was just $1,784 in March 2023 — meaning too many retirees are living in or on the brink of poverty.

Our nation’s largest private employer, Walmart, illustrates the problems looming in the American retirement system, and how pay disparities between CEOs and employees have become the norm in Corporate America. Walmart CEO Doug McMillon has amassed $169 million in his company’s deferred compensation plan, enough to deliver McMillon a monthly retirement check of $1 million.

Walmart’s employees face a far different future. Walmart disclosed to its shareholders that its median pay for its more than two million employees around the world was just $27,136 in 2022. In a separate filing, Walmart reports that it has established a 401(k) plan for each of its US employees, but, as is standard for most companies, they must contribute in order to receive the company’s 6% match. But it is hard to set aside money for retirement when you are trying to stretch your paycheck to buy food and pay for rent.

As a result, a whopping 46% of Walmart’s workers have a zero balance in their 401(k). Those who do have funds in their Walmart 401(k) have an average balance of $19,753, enough to generate a monthly retirement check of $120, according to Jobs With Justice analysis.

Defending its meager uptake of retirement benefits, a Walmart spokesperson told The Wall Street Journal that 401(k) matching cost the company $1.4 billion in 2022. This is a drop in the bucket for such a massive corporate giant — in November 2022, Walmart announced a $20 billion stock buyback plan, which rewards shareholders by boosting the stock price.

CEO-to-worker retirement disparities weren’t always so stark. As recently as 1984, 30 million Americans were covered by defined benefit pensions, through which companies bore the risk of stock market declines in order to guarantee workers a monthly check of a fixed amount.

Since the 1980s, employers have been shifting the market risks to their employees through 401(k) plans. Today, just 12 million American workers are covered by defined benefit plans, leaving workers with 401(k)s vulnerable to declines in stock market values. In 2022, workers with 401(k)s saw their retirement assets plummet about 20% from the year prior, according to Fidelity. At the same time, corporate boards like Walmart’s are approving executive benefits that have grown exponentially in comparison to worker pay — in fact, the Economic Policy Institute released a report stating that CEO pay has increased by 1,460% since 1978, while worker pay has increased by just 18.1%.

Another part of the problem comes from federal tax law. Ordinary employees face strict limits on the amount of income they can set aside tax-free into their retirement plans: $22,500 for most workers and $30,000 for workers over 50 (indeed, just 14% of Vanguard’s nearly five million 401(k) customers max out).

In contrast, CEO-deferred compensation plans have no limits to the amount of income that can be shielded from tax and grow tax-free until the funds are withdrawn. These special provisions save corporate executives millions of dollars in taxes, while denying federal and state treasuries funds they would otherwise be entitled to.

Congress has the power to narrow this retirement gap. First, it could close loopholes that favor corporate executives with lucrative retirement tax subsidies and instead treat all workers the same, regardless of the kind of work they do. That means all workers, regardless of the job they perform, should be subject to the same rules governing their tax-free retirement deferrals.

Second, lawmakers could raise the cap on income subject to Social Security payroll taxes, which is currently at $160,200. Currently, an executive earning $1 million a year finishes paying their payroll taxes in February — as every dollar over $160,200 is exempt from Social Security tax. Removing that cap would generate revenue to expand Social Security so that vulnerable workers with no other source of retirement income could receive additional monthly benefits.

Retirement inequality is a manifestation of corporate priorities to increase shareholder profits at the expense of worker retirement security, and federal policies that don’t do enough to balance interests and protect workers. Corporate profits should not trump peoples’ ability to retire comfortably. Together, we can begin to close these gaps and ensure all workers the dignified retirement to which they are entitled.

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