At the end of August, I made my first trip to Burning Man, an annual event held in the Black Rock Desert of northern Nevada. With 10 guiding principles, it involves art, music and free-spiritedness. This experiment in temporary community sees 65,000+ attendees converge on a dried-up lake bed, build a temporary city and leave behind no trace that it ever existed only a couple of short weeks later. Katie Couric, Chris Taylor and Grover Norquist describe it better than I could.
This year, Burning Man came to a close on September 2nd which just so happened to be ERISA’s 40th birthday. This piece of bi-partisan legislation from 1974 created nondiscrimination tests that ensure higher paid employees don’t receive benefits that are disproportionate to those provided to rank-and-file employees, established rules requiring that retirement assets be used for the exclusive benefit of plan participants and gave the federal government and courts jurisdiction to facilitate uniform treatment everywhere in the country. Phyllis Borzi, Sheldon Smith and Nick Thornton describe it better than I could.
As you can see, apart from that coincidental overlap in dates this year, the two are pretty much completely different…except that the media coverage over the last couple of weeks has been exactly the same. OK, maybe not exactly, given the varied subject matter, but there have been some striking similarities. Apparently, both have jumped the shark, and it’s the rich folks who are to blame.
For Burning Man, the common refrain is that Silicon Valley billionaires are taking over and turning it into a playground for the rich and famous to the exclusion of the “regular” attendee. Are there a few wealthy jerks out there flaunting their riches to the “have-nots”? Sure, but that is hardly unique to Burning Man. The vast majority of attendees tell a very different story – one of experiencing art and music in new ways, making long-term friendships and gaining a new perspective on positively interacting with their fellow human beings.
Similarly, there have been a number of columns declaring the failure of ERISA, because those ne’er-do-well rich folks (the business owners and Wall Street types) are breaking their pension promises and trying to bleed the system dry no matter who gets left in their wake. Are there a few wealthy jerks out there who don’t value their employees or who see a multi-trillion-dollar target on which to focus their nefarious objectives? Sure, but that is hardly unique to ERISA plans.
In 20+ years working in this industry, my experience is that most business owners try to do right by their employees while being fiscally responsible and attempting to comply with thousands of pages of less-than-intuitive rules. Likewise, plenty of financial services professionals have devoted their careers to helping business owners and employees alike make sense of the complexities of retirement planning.
As for pension promises, those were contemplated when retirement age was 65 and life expectancy was a little past age 68. Now, life expectancies are into the 80s but retirement age is still 65. The terms of the deal have to change - it just isn’t possible to provide 15+ years of retirement income on the same budget as providing it for 3 years, especially when healthcare spending has risen by more than 2,000%.
In the years since ERISA’s enactment, the number of retirement plans has more than doubled, and private employer spending on retirement benefits has increased by more than 900%. Accelerated vesting schedules have doubled the number of participants who vest in their benefits, and $23 trillion is set aside in retirement accounts to provide those benefits. What’s more, tax return statistics show that significant benefits go to those with household adjusted gross incomes below $100,000 per year. More actual facts about the positive impacts of ERISA plans are available here and here.
Is there room for the retirement plan system to improve? Sure, but that hardly makes it a failure. ERISA was enacted 40 years ago. It has evolved remarkably well in a rapidly changing environment, and it must continue to do so to meet the retirement needs of American workers. But, if the creation of 400,000 new plans and adding trillions of dollars to the country’s collective retirement savings is jumping the shark, then get me a pair of skis…but put them on wheels so I can use them at Burning Man next year.