Social Insecurity by James Russell: A review

Last year, Boeing workers in the states of Washington and Pennsylvania voted to eliminate their pension plans. As a result of the vote, vested Boeing workers will see their pensions frozen. The Boeing pension plan was replaced with a 401(k) type savings plan.

In exchange for giving up their pensions, workers in Washington were promised steady work through 2024, and workers in Pennsylvania received a substantial wage increase.

The scarcity of good paying, steady working class jobs may explain why Boeing workers chose to trade their pension for immediate benefits.

But as they get older and their retirement grows closer, they may come to regret their decision.

That’s how James Russell felt when he began thinking about retirement.

Early in his career, Russell, a sociology professor at Eastern Connecticut State University, had a choice to make about which retirement plan to choose.

He could enroll in a defined benefits plan that would pay him a guaranteed amount for life based on salary and years of service when he retired, or he could enroll in an individual savings plan similar to a 401(k) plan.

He chose to enroll in the 401(k) type plan.

When he started to consider retirement in the 1990s, he did the math, and realized that he had made a mistake.

“I was shocked to find out that even in a bull market, I would receive less than half of what people in (the State of Connecticut’s public employee) pension plan would receive, and my employee contributions were more than double theirs,” writes Russell.

According to Russell, disingenuous sales pitches and a plethora of misinformation about 401(k) and similar individual savings plans caused him to make his bad decision.

Russell writes critically about his own experiences with 401(k) type plans and their shortcomings in his book, Social Insecurity: 401(k)s and the Retirement Security Crisis published by Beacon Press.

Russell wasn’t the only one dissatisfied with their 401(k) type plan, and many of these dissatisfied Connecticut public employees banded together to launch a movement that succeeded in getting the state to allow them to convert their savings plans into one of the state’s defined benefit pension plans.

Social Insecurity also tells the story of this successful movement, which Russell played a key role in building. Russell’s account of this movement contains some useful lessons for anyone engaged in fighting for economic justice.

Russell’s book is divided into three sections. The first five chapters provide background about the rise of 401(k) plans and the misleading way that they’ve been sold to the public.

He like many others chose a 401(k) type plan based on what he says were “manufactured myths.” According to Russell, people were told erroneously that 401(k) plans produce higher rates of return than traditional pensions or Social Security, that 401(k) plans are cheaper than traditional pensions, that Social Security is going broke, and that public pensions are unsustainable.

Furthermore says Russell, the rise of 401(k) plans had nothing to do with making working people’s retirement more secure and everything to do with diverting secure retirement fund money into revenue streams for private insurance, investment, and financial services firms.

The second part of the book focuses on how the rosy narrative about 401(k) plans began to unravel.

To tell this story, Russell traveled to Chile, a country which during the Pinochet dictatorship, replaced its social security program with a 401(k)  type plan called AFP.

According to Russell, who interviewed Chilean pension experts critical of the conversion, the weaknesses of Chile’s AFP became evident in the early 2000s as people began to retire under the plan and their expectations of retirement security failed to materialize.

Russell cites the findings of a study published by Chile’s National Center for Alternative Development (CENDA, its Spanish acronym).

According to the study, growth rates for individual AFP accounts were much lower than projected, retirees on average were receiving about half of what they would have under the old social security system, many, especially those working in the informal economy, had no AFP savings, and women who retired under AFP received much less than men.

The shortcomings of the AFP led to reforms in 2008. While AFP accounts were kept in place, the government created a fund that makes payments to retirees whose AFP annuity was inadequate. Those without an AFP account also received basic pension payments.

In all, about 60 percent of Chileans now receive some kind of government payment either to supplement their AFP or because they had no AFP account.

The third part of Social Insecurity, describes how some Connecticut public employees succeeded in converting their individual savings plans into a defined benefit pension plan.

Russell played a key role in building this movement. Here are some important lessons about movement building learned from Russell’s account of the struggle for conversion.

  • Persistence pays off: It was a long time between when Russell first started talking to people about converting to a defined benefits plan and the birth of the movement to do so. It took the financial crash of 2008 to get people to listen to and act on what Russell was saying, but his persistence paid off.
  • Good research is important: Before Russell started talking to people about conversion, he researched the subject rigorously.  His research gave him credibility among his peers and was key to getting his union to back his cause. Most important though, special interests that wanted to prevent conversion were never able to refute his research.
  • Build a broad base: By reaching out to his fellow employees, Russell was able to transform his outrage about retirement insecurity into a movement that made real change possible.
  • Communicate and listen to the base: Russell kept in constant touch with employees who signed up for his e-mail list. This contact was an important factor in rebutting misinformation. It also provided him with a way for recognizing and responding to concerns of his supporters.
  • Don’t be afraid to practice union democracy but don’t assume that union leaders are your enemy: It took Russell and the voices of other rank and file union members to get their unions to make conversion a bargaining priority. Union leaders weren’t always ardent supporters of conversion, but once conversion became a bargaining priority, the leadership fought hard to achieve it.
  • Learn to deal with setbacks: When the state finally agreed to allow conversion, a last-minute glitch postponed the conversion and almost derailed it. Those who had fought for conversion dealt with this setback and continued to push for it. Their tenacity resulted in victory.
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