Talk about Americans’ retirement wages again

Not long ago, we introduced to netizens the situation of Americans receiving Social Security Benefits after retirement. Today, we will introduce another retirement salary system that is parallel to Social Security Benefits, namely “Pension”. First of all, it should be pointed out that “Pension” and Social Security Benefits are two different systems. Employees generally only participate in one of the systems. From the current situation, it can be seen that the main participants in the Social Security Benefit system are employees in the private sector, accounting for more than half of the retirees, while the participants in the “Pension” system are mainly government employees, plus some private enterprise employees, especially union members.

The government departments mentioned above include the federal government, state governments, county and city governments, and federal departments such as the Postal Service and Amtrak. Taking the federal government as an example, the federal government currently implements the Federal Employees Retirement System (FERS), which came into effect on January 1, 1987. After that, the retirement wages of employees who joined the federal government were handled in accordance with the regulations of this system. The Federal Employees Retirement System is relatively complex. Generally speaking, it consists of three parts, namely the Basic Benefit Plan, Social Security, and the Thrift Savings Plan. The amount of “pension” received by employees after retirement is mainly composed of the Basic Benefit Plan plus the other two parts. As for the “pensions” of state and local governments, they have their own regulations and cannot be introduced one by one. However, their principles are similar to those of the federal government, that is, as long as they are government employees and have reached a certain number of years of service and age standards, they can receive monthly “pensions” after retirement.

As for the “pension” system of private enterprises, if we look at it from a time perspective, it has been the mainstream retirement benefit of American companies half a century ago, but in recent decades it has gradually been replaced by another form of retirement savings account plan, namely 401 (k), 403 (b) and similar plans. According to statistics from the Congressional Research Service, in 1975, there were 27.2 million private enterprise employees participating in “pensions” and 11.2 million participating in retirement savings account plans, the former being 2.4 times the latter. By 2019, the former had dropped to 12.6 million, while the latter had increased to 85.5 million, the latter being 6.8 times the former. In other words, the scale of the “pension” system implemented in private enterprises is getting smaller and smaller.

The difference between a “pension” and a retirement savings account plan is that a “pension” is a fixed monthly salary that employees receive after retirement. For example, after David retires from Company A at the age of 65, he will receive a “pension” of $3,000 from Company A every month until his death. However, 401(k), 403(b), etc. are deposited by David himself from his salary during his working years, and the employer deposits a portion of the money in proportion. The two are combined to become David’s retirement income. Assuming that David has $200,000 in his 401(k) account, he can choose to withdraw it all at once or monthly. However, if David does not deposit money into his retirement savings account during his working years, the employer will not deposit money in proportion. When David retires, the amount in his savings account will be zero, that is, he will have no income and can only rely on social security to maintain his retirement expenses. From this point of view, “pensions” are paid monthly by employers and have nothing to do with whether employees deposit money into their savings accounts every month. Therefore, in the minds of ordinary people, “pensions” are the gold standard, have a nostalgic appeal, and are superior to retirement savings account plans.

In order to protect the rights of private enterprise employees to receive “pensions”, the federal government has an agency called the “Pension Benefit Guaranty Corporation”, which specializes in underwriting the “pensions” of private enterprise employees. Its main responsibility is to ensure that private company employees will not be deprived of retirement wages due to business closures, mergers or funding shortages, so that employees participating in private enterprise “pension” plans can rest assured.

We have introduced two types of retirement wages for Americans after retirement, namely social security benefits and pensions. Generally speaking, no matter which type of retirement wages, for retired people, it generally guarantees the financial needs of their later years. According to the Federal Reserve’s “Economic Well-Being of US Households in 2023”, about 80% of retirees said that their financial situation is good, which is higher than the overall assessment of adults on their financial situation.