Informative summary of Book Excerpt: While America Aged
The account While America Aged by Roger Lowenstein is based on pension debts and the promises made by companies in relation to benefits promised with employment. The book concentrates mainly on how pension debts ruined General Motors, an American vehicle company ranked the world’s second largest auto-maker in only 2008. He makes a comparison of the effect of pensions on the company and the likelihood of similar impact on the public sector. In the 1990’s, due to generous pension, healthcare benefits and healthcare for employees and retirees, the company suffered the challenge of having more retirees than actual employees (Lowenstein, 2008).
Issues of Note
He writes with specific reference to the transport system, the subway and bus system in particular. Lowenstein notes in comparison how while in the last century people enjoyed longer careers and lived off their pensions for up to ten years, today they have shortened careers and longer dependence on pensions. This has had the effect of creating what is possibly the next financial crisis given that a larger number of pensioners are living off taxpayers. He compares the public and private sectors with reference to the special laws protecting public sector employees from being denied access to benefits accrued despite economic failure. For the private sector on the other had given an impending financial crisis the company has the option to completely freeze all operations and paying off employees up to date. On noting this strong weakness, politicians were faced with the challenge of coming up with a system to save the economy while at the same time not hurting the general public. This was because they could after all be easily voted out of office.
Based on the political career of Kalikow, who aimed at a system that would reduce the benefits afforded to employees in the transport sector, increase their retirement age and increase the salaries they earned (Lowenstein, 2008). This would apply only to employees taken on from a specified date. The reason behind it was that he believed the employees had at their disposal too many benefits in addition to pension and including full healthcare. The cost of all these benefits was transferred to the general public. Therefore, since it was impractical and almost impossible to reduce the workers salaries he found a way to ease into the new policies. This would thereby lead to smooth transition since the transport system was very crucial to the smooth running of the economy. For example, tampering with the salaries of the existing staff could lead to a nationwide strike thereby crippling the whole system. In increasing the salaries of future staff, reducing their benefits and increasing their retirement age, it ensured they made a contribution to the fewer benefits they had and paid for those that had been taken away. A balance was also ensured by a small increase in the transport cost.
The large shift from traditional defined-benefits pensions to that of distinct contribution plans has caused some skepticism among retirees. This has however greatly reduced the burden on businesses and they can plan to avoid a situation such as that of General Motors. While this ensures for businesses that they have increased revenue, for the employees they must hope that the economy does not crash on their retirement and this therefore paints a picture of doom for them. The solution that Lowenstein provides is that healthcare becomes availed to all individuals by the government. He also suggests of proper funding to the responsibility of pension schemes of governments and businesses.
Lowenstein, R., (2008, July 7), Book Excerpt: While America Aged, SmartMoney Magazine, Retrieved 24 August 2009 from http://www.smartmoney.com/personal-finance/retirement/book-excerpt-roger-lowenstein-while-america-aged-23407/