The stock market grew by 248 percent between 1989 and 1998, accompanied by a skyrocketing increase in the number of households with 401(k) pension accounts. Together, they made possible the promise of a secure retirement. Or at least that’s what we’re told.

But here, as is always the case when we talk about retirement wealth and pensions there is a yawning gap between fact and fiction.

Edward N. Wolff, a New York University economist, is not impressed by the increase in the number of those who have staked their future on a 401(k) account. “I think the 401(k) is a real scam,” he told The New York Times recently. “People get their monthly statements and they say, ‘Wow, look at how much money is in my 401(k),’ and they don’t see what has disappeared.”

That “what” is that by focusing on the balance of their 401(k)s people fail to realize that company-paid pension plans with their “defined” benefit would have made for a more secure future than can be achieved by saving for retirement on one’s own.

According to Wolff, the number of “breadwinners” in households with annual incomes of between $35,000 and $75,000 – 35 percent of the total – with defined benefit pension plans declined from nearly 70 percent in 1983 to a little more than 40 percent in 1998. He says that families in this income bracket saw their wealth – the combined value of their homes, personal savings, stocks and bonds – decline by more than 13 percent during those years.

While it is true that the “magic of compound interest” may have worked for some people, the numbers tell a different story: According to the Labor Department, the average balance in a 401(k) account is too meager to pay for more than two or three years of retirement. Other data show that the average 401(k) account lost $5,000 last year.

The swing from company-guaranteed pensions to 401(k)-style plans has relieved employers of billions of dollars in pension obligations. US workers now put more money into employer-sponsored pensions and retirement savings than the companies themselves and, more to the point, 401(k)s sent $2 trillion in employee pension funds into the stock market in recent years. Worse yet, as witness Enron, more and more companies are making their contributions in the form of company stock, proof if proof is needed, that when workers cast their lot with capital, capital usually wins.

Other statistics are equally disturbing:

• Only about 43 percent of today’s senior households have any private pension.

• Fewer than one-third of workers in companies with less than 100 employees participate in an employer-based retirement plan.

• Fewer than one-fifth of low-income workers have pensions while part-time workers have even less access to these plans.

• The share of households with private pensions equal to half or more of their pre-retirement income declined for 42.5 percent to 30 percent between 1989 and 1998.

Nor is there any light at the end of the tunnel. According to Labor Department projections, 18 of the 30 occupations that will grow the fastest between 2000 and 2010 will provide annual incomes of less than $27,000. If we assume that a worker employed in one of these jobs and his/her employer will each have contributed 3 percent of earnings to a 401(k) account for 40 years – an optimistic assumption – a worker in those occupations will only have accumulated enough savings to provide for less than a quarter of pre-retirement income.

So what to do in a situation where 40 percent of senior women, African Americans and Latinos have incomes below 150 percent of poverty and where seniors in the bottom income quintile get nearly twice as much of their income from public assistance agencies than from private pensions?

The Communist Party has a solution: Increase all categories of benefits – old age, survivors and disabled persons – paid under the Social Security Act by an average of 50 percent, with the increase apportioned in such a manner that no beneficiary has an income of less than 150 percent of poverty. Had this proposal been in effect in 2001, the minimum benefit would have been $1,100 instead of a little over $700.

For those who ask where the money will come from, we answer simply, “From them that’s got it.” And believe me, there’s plenty there – all we need to do is figure out how to get it!

The author can be reached at


Fred Gaboury
Fred Gaboury

Fred Gaboury was a member of the Editorial Board of the print edition of  People’s Weekly World/Nuestro Mundo and wrote frequently on economic, labor and political issues. Gaboury died in 2004. Here is a small selection of Fred’s significant writings: Eight days in May Birmingham and the struggle for civil rights; Remembering the Rev. James Orange; Memphis 1968: We remember; June 19, 1953: The murder of the Rosenbergs; World Bank and International Monetary Fund strangle economies of Third World countries