How Wall Street, Corporations, and Both Political Parties Dismantled Retirement Security for the Bottom 90%
Meet Barbara. She worked as an administrative assistant at a manufacturing company for 38 years. In 1985, when she was hired at age 25, her offer letter promised a pension: after 30 years of service, she’d receive 60% of her final salary for the rest of her life. She could retire at 55 with dignity, maybe travel a bit, spend time with grandkids.
In 1999, the company “modernized” its benefits. The pension was frozen. Barbara and her coworkers were told this was great news: they were getting a 401(k) instead! Company match! Tax advantages! Control over their own destiny! Freedom!
Barbara is now 63. Her 401(k) balance is $87,000. At a 4% withdrawal rate, that’s $3,480 per year. Her old pension would have paid her $31,200 annually for life. The difference? $27,720 every single year until she dies.
Where did that money go? Wall Street took $21,000 in fees over those 24 years. The 2008 crash vaporized another $38,000 (which a pension would have absorbed). Market timing—because Barbara had to keep contributing during the crash—cost her another $15,000. And the psychological burden of watching her life savings fluctuate made her too conservative with investments, costing another $19,000 in lost returns.
Barbara’s company saved approximately $420,000 in pension obligations by switching her to a 401(k). The CEO who made that decision retired at 59 with a $420,000 annual pension—defined benefit, guaranteed for life, with cost-of-living adjustments—plus lifetime health insurance for himself and his spouse. Barbara lost her health insurance the day she retired and had to scramble for Medicare coverage.
Barbara’s story is not unique. It is the story of 50 million American workers. And it represents the single largest wealth transfer from the working class to the financial industry in American history.
The Great Pension Heist: How America Destroyed Retirement Security
Let’s start with what we lost. A defined-benefit pension was simple: work for a company for X years, retire with Y percentage of your salary, guaranteed for life. The company invested the money, bore all the investment risk, and paid you no matter what happened in the stock market. If you lived to 95, you got paid until 95. If the investments went bad, that was the company’s problem, not yours.
In 1980, 38% of private-sector workers had a defined-benefit pension. By 2023, that number had collapsed to 15%—and it continues to fall. For workers under 40, the number is in single digits. The pension, a cornerstone of the American middle class for half a century, has been almost entirely eliminated in a single generation.
What replaced it? The 401(k), a retirement savings vehicle that was never actually designed to be anyone’s primary retirement plan. The 401(k) was created in 1978 as a tax loophole for highly paid executives to defer compensation. It was never intended to replace pensions. But corporations saw an opportunity: shift investment risk and responsibility from the company to individual workers, call it “freedom” and “control,” and pocket the savings.
By the mid-1990s, the transition was in full swing. Companies froze pensions (meaning current workers stopped accruing benefits), and new hires never got pensions at all. The pitch to workers was seductive: “You’re in control now! Choose your own investments! Your 401(k) goes with you if you change jobs!” What they didn’t mention was that you were now responsible for:
• Deciding how much to contribute (most people contribute too little)
• Choosing investments (most people choose poorly)
• Bearing all market risk (2008 crash? Your problem)
• Paying Wall Street fees (1-2% annually, compounding over decades)
• Managing withdrawals in retirement (run out of money? Also your problem)
• Outliving your savings (a pension paid until death; a 401(k) can run dry)
Every single one of these responsibilities used to belong to your employer. They were shifted to you. And with them went any semblance of retirement security for the bottom 90%.
The Numbers: America’s Retirement Catastrophe
Here’s what the great pension-to-401(k) shift has produced:
The median 401(k) balance for Americans aged 55-64 (people approaching retirement) is $61,738. Using the standard 4% withdrawal rule, that provides $2,470 per year in retirement income. For context, the federal poverty line for a single person is $15,060. Social Security provides an average of $1,907 per month ($22,884 per year). So the median American approaching retirement has 401(k) savings that will provide about 11% of what Social Security provides—assuming they don’t live too long and drain the account entirely.
But that median number is misleading because it only counts people who actually have a 401(k). According to the Federal Reserve’s 2022 Survey of Consumer Finances, 50% of American households aged 55-64 have zero retirement account savings. Zero. Half of Americans approaching retirement age have nothing saved in a 401(k) or IRA.
Meanwhile, the top 10% of households approaching retirement have a median retirement account balance of $1.2 million. The system works great—if you’re already rich.
The retirement wealth gap mirrors the overall wealth gap in America, but it’s actually worse. While the top 10% hold 77% of all wealth in America, they hold an even larger share of retirement assets. Why? Because 401(k)s are a regressive wealth-building tool. Higher earners can afford to contribute more, get bigger tax deductions (because they’re in higher tax brackets), and have employers who provide more generous matches. Meanwhile, lower-wage workers often can’t afford to contribute at all—they need every dollar of their paycheck to survive.
This is what “success” looks like in the 401(k) era: half of Americans will retire in or near poverty, entirely dependent on Social Security (which we’ll get to shortly). Meanwhile, executives and high earners have healthy retirement accounts and, in many cases, still have their pensions. Because of course they do.
Executive Retirement Packages: The Perks You’ll Never Get
Let’s talk about what corporate executives and members of Congress actually get for retirement—because the rules that apply to us don’t apply to them.
When a Fortune 500 CEO retires, here’s what the package typically includes:
1. A defined-benefit pension (the very thing they eliminated for workers), often $500,000 to $2 million annually for life, with full cost-of-living adjustments.
2. Supplemental Executive Retirement Plans (SERPs)—additional pension benefits beyond the limits that apply to regular workers. While you’re capped at $275,000 in annual pension benefits under federal law, executives get unlimited additional benefits through SERPs.
3. Lifetime health insurance for the executive and spouse—gold-plated plans with minimal or no premiums, while you’re paying $200-500/month for Medicare supplements.
4. Life insurance policies worth millions of dollars.
5. Deferred compensation plans allowing executives to shield millions from current taxation while earning guaranteed returns (often 8-10% annually) that far exceed what workers can earn in 401(k)s.
6. Office space and administrative support, sometimes for years after retirement.
7. Country club memberships, often costing $50,000-100,000 annually.
8. Financial planning and tax preparation services, worth $20,000-50,000 per year.
9. Use of company facilities—occasionally including corporate jets, car services, and security.
10. Golden parachutes—severance packages worth tens of millions if they’re forced out, even if they drove the company into the ground.
Some real examples:
Jack Welch, former CEO of General Electric: His 1996 retirement package included a $9 million annual pension, lifetime use of a company apartment in Manhattan (valued at $50,000/month rent), unlimited use of corporate jets, courtside seats at New York Knicks games, box seats at Boston Red Sox games, membership fees at country clubs, and access to company facilities. The total value of perks alone was estimated at $2.5 million annually—on top of his $9 million pension. His package was so obscene it became a scandal during his 2002 divorce proceedings, and he voluntarily gave up some of the perks.
Lee Raymond, former CEO of ExxonMobil: Retired in 2005 with a total package worth $400 million, including a $69.7 million pension lump sum payment, plus annual pension payments of approximately $1 million. He also received lifetime health benefits, financial planning services, and use of company resources.
Rex Tillerson, former CEO of ExxonMobil (before becoming Secretary of State): Retirement package estimated at $180 million total, including deferred compensation and pension benefits. And yes, this was the same company that froze pensions for regular workers.
Robert Iger, CEO of Disney: When he stepped down in 2020 (before returning in 2022), his total compensation package included pension benefits estimated at $60 million-plus. Disney froze its pension plan for non-union employees in 2002.
Notice the pattern? The executives who eliminated pensions for workers kept their own pensions. And not just pensions—lifetime health insurance, country club memberships, financial planning services, and perks worth millions of dollars annually. The retirement security they denied to workers, they guaranteed for themselves.
Congressional Retirement: Different Rules for the Rule-Makers
But executives aren’t the only ones with special retirement deals. The members of Congress who spend their careers talking about the need to “reform” Social Security and suggesting we raise the retirement age have their own very comfortable retirement arrangements.
Members of Congress are covered by the Federal Employees Retirement System (FERS), which is far more generous than Social Security:
• They’re eligible for a pension after just five years of service. Five years. If you work for Congress for five years, you get a pension for life.
• The pension formula is 1.7% of their highest three-year average salary for each of their first 20 years of service, then 1% for each additional year. A member who serves 20 years earning the current congressional salary of $174,000 gets a pension of approximately $59,160 per year starting at age 62.
• If they serve longer, the pension increases. A member who serves 30 years gets approximately $83,280 annually—48% of their final salary, for life.
• They can start collecting as early as age 50 if they’ve served 20 years, or age 60 after 10 years of service.
• Their pensions include full cost-of-living adjustments, the same COLAs they periodically debate eliminating or reducing for Social Security recipients.
• They’re eligible for lifetime health insurance through the Federal Employees Health Benefits Program (FEHB), one of the best health insurance programs in the country. Premiums are heavily subsidized—the government pays approximately 72% of the cost.
• There is no means testing. A retired member of Congress making $500,000 per year in speaking fees and board positions still gets their full pension and subsidized health insurance.
As of 2023, there are approximately 617 retired members of Congress receiving federal pensions, with an average annual pension of $41,208. But that average is misleading because it includes members who served only a few terms. Members who served 20-30 years (which is common) receive pensions of $60,000-85,000 annually, plus lifetime subsidized health insurance.
Compare that to Social Security. The average Social Security benefit is $1,907 per month ($22,884 per year). The maximum Social Security benefit (which you only get if you earned the maximum taxable amount for 35 years) is $4,873 per month ($58,476 per year). So a member of Congress who served 20 years gets approximately the same pension as someone who maxed out Social Security—except the Congressperson only had to work for 20 years, not 35, and they can start collecting at age 50-62 instead of waiting until 67.
And here’s the most infuriating part: these are the same people who talk about the need to raise the Social Security retirement age from 67 to 69 or 70, who suggest means-testing Social Security benefits, who propose reducing cost-of-living adjustments, and who claim we “can’t afford” to expand Social Security.
They face no similar pressure to reform their own retirement system. No one suggests raising the congressional retirement age. No one proposes means-testing congressional pensions (“Senator, you’re worth $50 million—do you really need a $70,000 annual pension?”). No one talks about reducing their cost-of-living adjustments.
The rules are different for them. They get defined-benefit pensions. They get lifetime subsidized health insurance. They can retire at 50 after 20 years of service. Meanwhile, they tell us we need to work until 70 and that Social Security’s modest benefits are “unsustainable.”
The retirement crisis is not an accident, and it’s not because we can’t afford to provide retirement security. It’s because the people making the rules have exempted themselves from the consequences. Executives kept their pensions while eliminating ours. Congress enjoys generous retirement benefits while starving Social Security. The system works perfectly—for them.
Wall Street’s $100 Billion Annual Payday: The Fee Extraction Machine
Here’s the part that should make you furious: the 401(k) system isn’t just failing workers—it’s actively enriching Wall Street at our expense. Americans collectively have about $7.3 trillion in 401(k) accounts (as of 2023). And we pay approximately $100 billion per year in fees to financial companies to manage that money.
One hundred billion dollars. Every single year. That’s more than the entire federal budget for the Department of Housing and Urban Development ($73 billion). It’s more than the EPA ($10.1 billion) and the Department of Education ($79 billion) combined. It’s enough to pay the full tuition at every public university in America for 1.8 million students.
But we’re not getting education or housing or clean air with that $100 billion. We’re paying financial companies—mutual fund managers, 401(k) administrators, recordkeepers, investment advisors—to hold our retirement savings. And most Americans have no idea how much they’re paying, because the fees are buried in fund expense ratios and administrative charges that never show up as a line item on any statement.
Let’s talk about what those fees actually cost you. The average 401(k) charges about 1% in fees annually when you add up all the expense ratios, administrative costs, and advisor fees. One percent doesn’t sound like much. But here’s the math:
If you contribute $500 per month to a 401(k) for 40 years, assuming a 7% annual return, you’d have about $1,310,000 at retirement with no fees. With a 1% annual fee, you’d have $945,000. That’s $365,000 stolen by fees—28% of your total savings. For doing what, exactly? Holding your money in index funds that could be managed for 0.03% (which is what Vanguard charges for its total stock market index fund).
But it gets worse. Many 401(k) plans charge far more than 1%. Small and medium-sized employers often have plans with total fees of 1.5% to 2% annually. At a 2% fee, that same $500/month contribution for 40 years produces only $696,000 at retirement. The fees ate $614,000—nearly half your retirement savings.
Who gets that money? Mutual fund companies like Fidelity, Vanguard (which is actually pretty good on fees), BlackRock, State Street, and T. Rowe Price. The CEOs of these companies are compensated very well for managing your retirement savings:
• Larry Fink, CEO of BlackRock: $26.3 million in total compensation (2022)
• Abigail Johnson, CEO of Fidelity Investments: estimated net worth $27.4 billion (2023)
• Charles Schwab, founder of Charles Schwab Corporation: net worth $11.2 billion (2023)
These are the people skimming 1-2% off your retirement savings every year. And they’re doing it whether the market goes up or down, whether your account grows or shrinks, whether you retire in comfort or die in poverty. They get paid no matter what.
The particularly galling part is that most of this “active management” is nonsense. Approximately 90% of actively managed mutual funds fail to beat their benchmark index over a 15-year period. You’re paying financial managers 1-2% annually to underperform the market. You’d be better off—demonstrably, mathematically better off—putting your money in low-cost index funds and never touching it.
But the 401(k) system is specifically designed to make it hard for you to choose low-cost options. Many plans don’t even offer index funds. Or they offer them but bury them in a menu of 40 different options, most of which are high-fee actively managed funds that pay kickbacks to the plan administrator. It’s a rigged game, and you’re the mark.
The Original Gig Economy: How Companies Eliminated Retirement Benefits Entirely
But wait—it gets worse. Because at least the workers who have access to a 401(k) have some chance of saving for retirement, even if the deck is stacked against them. Increasingly, workers don’t even get that.
Starting in the 1990s—particularly during the dot-com era—corporations discovered an even better way to cut costs: eliminate the employee-employer relationship entirely. Fire your workforce. Hire them back as independent contractors, consultants, or freelancers. Pay them as 1099 workers instead of W-2 employees.
This is the original gig economy, and it predates Uber and DoorDash by two decades. It started in industries like film and television production (where union protection covered crew members but left everyone else vulnerable), tech (where Microsoft got sued in the 1990s for having “permatemps” but the practice continued anyway), journalism and media (where staff writers became freelancers), and consulting and professional services (where “independent consultants” are just employees without benefits).
The math for companies was irresistible. Fire an employee making $60,000 per year plus $18,000 in benefits (health insurance, payroll taxes, 401(k) match, paid time off). Hire them back as a contractor for $70,000. Tell them they got a raise. And watch as the company saves $8,000 per worker while the worker ends up worse off once they account for self-employment taxes (15.3% instead of 7.65%), buying their own health insurance, losing the 401(k) match, and having no paid time off.
For retirement specifically, the contractor scam is devastating. Independent contractors cannot participate in their client’s 401(k) plan, even if the company has one. They can open their own solo 401(k) or SEP-IRA, but there’s no employer match—because there’s no employer, even though you’re doing the exact same work for the same company in the same office you did when you were an employee. And because you’re now paying both halves of the payroll tax (that 15.3% self-employment tax), you have far less money available to save for retirement.
The scale of this workforce reclassification is massive. In 1995, approximately 10 million Americans were independent contractors. By 2023, that number had exploded to 59 million—roughly 36% of the entire U.S. workforce. That’s 59 million workers who have no access to employer-sponsored retirement benefits of any kind. No 401(k). No pension. No employer match. Nothing.
And a significant portion of these “independent contractors” aren’t actually independent—they’re misclassified employees. The IRS has a three-part test (the ABC test) to determine if someone is truly an independent contractor:
A. The worker is free from control and direction of the hiring entity
B. The worker performs work that is outside the usual course of the hiring entity’s business
C. The worker is customarily engaged in an independently established trade, occupation, or business
Most “contractors” fail all three tests. The production coordinator working 60-hour weeks on a studio film? Fails all three. The permatemp software developer at a tech company? Fails all three. The freelance writer producing articles for a media company’s website? Fails all three. They should legally be employees with access to benefits, including retirement plans. But companies classify them as contractors anyway, and the IRS—chronically underfunded and understaffed—doesn’t enforce the rules.
California tried to fix this problem with AB5 in 2019, which required companies to classify workers as employees unless they could prove the workers met the ABC test. And how did companies respond? They spent $200 million on Proposition 22 to exempt themselves from the law. That’s how valuable eliminating benefits—including retirement benefits—is to corporations. They’ll spend hundreds of millions of dollars to avoid paying for your retirement.
Private Equity’s Pension Pillaging: The Looting Continues
For the shrinking number of workers who still have pensions, there’s another threat: private equity. Private equity firms have turned pension funds into profit extraction vehicles, and the tactics are brazen.
Here’s how it works. A private equity firm buys a company using massive amounts of borrowed money (a leveraged buyout). The debt isn’t on the private equity firm’s books—it’s on the company’s books. The company now has to service this debt, which eats into profits and cash flow. To free up cash, the private equity owners gut the pension.
The first move is to freeze the pension (stop accruing new benefits for current workers). The second move is to underfund it (contribute less than actuaries say is necessary to meet future obligations). The third move is to offload it entirely through a “pension risk transfer”—essentially selling the pension obligations to an insurance company, which pays retirees less than they were promised and keeps the difference as profit.
If the company goes bankrupt (which is common after a private equity buyout loads it with debt), the pension gets dumped onto the Pension Benefit Guaranty Corporation (PBGC), a federal insurance program. The PBGC takes over the pension obligations, but it only pays up to $74,454 per year—far less than many retirees were promised. The difference? That’s your haircut for the crime of working for a company that got bought by private equity.
Some examples:
Toys “R” Us: In 2005, Bain Capital, KKR, and Vornado bought Toys “R” Us for $6.6 billion in a leveraged buyout. The company was loaded with $5 billion in debt. In 2018, it filed for bankruptcy. The pension was frozen in 2006, and workers who had been promised pensions saw their benefits slashed. Meanwhile, the private equity firms extracted over $200 million in fees before the bankruptcy. KKR’s co-founders Henry Kravis and George Roberts are each worth approximately $8.6 billion (2023).
Sears: In 2004, ESL Investments (run by Eddie Lampert) bought Kmart and merged it with Sears. Over the next 15 years, Lampert extracted over $2 billion from the companies through real estate deals, stock buybacks, and dividends—while the pension fund became severely underfunded. When Sears filed for bankruptcy in 2018, the pension was $1.4 billion underfunded. The PBGC took it over, and retirees saw their benefits cut. Eddie Lampert’s net worth: $1.2 billion (2023).
Hostess Brands: In 2013, Hostess liquidated and 18,500 workers lost their jobs and saw their pensions slashed. The pension was $2 billion underfunded. Two private equity firms (Apollo Global Management and Metropoulos & Co.) bought the brand assets for $410 million, relaunched with a non-union workforce and no pensions, and sold the company in 2016 for $2.3 billion. Apollo’s founder Leon Black: net worth $10.1 billion (2023).
Notice the pattern? Workers lose their pensions. Private equity billionaires get richer. And both political parties have allowed this to continue for decades, because private equity donates generously to both sides. According to OpenSecrets, the private equity industry contributed $128 million to federal candidates in the 2022 election cycle—$67 million to Republicans, $61 million to Democrats. You can buy a lot of pension raids with that kind of money.
The Social Security ‘Crisis’ That Isn’t: Manufacturing Panic to Justify Cuts
With pensions gone and 401(k)s failing the majority of Americans, Social Security is the only thing standing between tens of millions of seniors and poverty. Which is why there’s been a 40-year bipartisan campaign to cut it.
You’ve heard the narrative a thousand times: Social Security is going bankrupt. The trust fund will run out. There’s a crisis. We need to raise the retirement age, cut benefits, means-test it, privatize it—anything except the obvious solution, which is to make rich people pay their fair share.
Here’s the reality. Social Security is funded by a 12.4% payroll tax (split between employer and employee, 6.2% each). But that tax only applies to the first $168,600 of earnings (as of 2024). Every dollar you earn above that is exempt from Social Security taxes.
So if you make $50,000 per year, you pay 6.2% on all of it. If you make $168,600 per year, you pay 6.2% on all of it. But if you make $1,000,000 per year, you pay 6.2% on only the first $168,600—which is an effective tax rate of 1.05% on your total income. And if you make $10 million per year (from salary, not counting investment income, which is exempt entirely), your effective Social Security tax rate is 0.1%.
This is called a regressive tax—it hits lower earners harder than high earners. And it’s the reason Social Security faces a funding shortfall. Because while the wage cap has increased modestly over the years, the concentration of income among the top 1% has exploded. In 1983, the Social Security wage cap covered 90% of all wages earned in America. Today it covers only 83%. Billions of dollars in wages—earned by the wealthiest Americans—are completely exempt from Social Security taxes.
The solution is obvious: eliminate the wage cap. Make everyone pay 6.2% on all their earned income, just like the bottom 94% of earners already do. If we did that, Social Security would be fully funded for 75+ years. Problem solved.
But instead, the bipartisan consensus in Washington is that we need to cut benefits. Raise the retirement age from 67 to 69 or 70. Reduce cost-of-living adjustments. Means-test benefits so that higher earners don’t get them (turning Social Security from a universal program into welfare, which makes it easier to cut later). Anything except asking rich people to contribute their fair share.
And here’s the cruelest irony: while politicians from both parties talk about the need to “reform” Social Security by cutting benefits for working people, they face no such pressure to cut their own pensions. Members of Congress are eligible for pensions after just five years of service. A member who serves for 20 years and retires at age 62 can receive an annual pension of $66,000 for life. And there’s no means testing, no talk of raising their retirement age, no discussion of reducing their cost-of-living adjustments.
The rules are different for them. They get defined-benefit pensions. We get lectures about fiscal responsibility and suggestions that we work until we’re 70.
The Tax on Social Security Benefits: Kicking Seniors While They’re Down
And here’s something that should absolutely enrage you: we tax Social Security benefits. That’s right—after paying into Social Security your entire working life with payroll taxes, after surviving on a benefit that averages $1,907 per month ($22,884 per year), the federal government can tax up to 85% of your Social Security income if you have other sources of income.
The thresholds are absurdly low. If you’re single and your “combined income” (Social Security plus other income) exceeds $25,000, up to 50% of your benefits are taxable. Above $34,000, up to 85% is taxable. For married couples filing jointly, the thresholds are $32,000 and $44,000.
These thresholds were set in 1983 and have never been adjusted for inflation. If they had been indexed to inflation, the 85% threshold for singles would be $96,000 today, not $34,000. But Congress has never updated them, which means more and more seniors get hit with taxes on their benefits every year as Social Security cost-of-living adjustments push them over the fixed thresholds.
So let’s get this straight. You work for 40 years. You pay 6.2% of every paycheck into Social Security. You retire on a modest benefit—$22,884 per year on average. And if you managed to save a little bit in a 401(k) or IRA and withdraw $12,000 per year from it to supplement your Social Security, you now owe federal income tax on up to 85% of your Social Security benefit.
Meanwhile, capital gains—the income wealthy people make from investments—are taxed at preferential rates. Long-term capital gains are taxed at 0%, 15%, or 20% depending on income, compared to ordinary income tax rates that go up to 37%. If you’re a retiree living on Social Security and a modest 401(k), you pay taxes on your Social Security at your ordinary income rate. If you’re a billionaire living on capital gains from your stock portfolio, you pay 20% (and often find ways to pay even less).
Both parties could eliminate the tax on Social Security benefits tomorrow. It would cost about $48 billion per year—roughly one-twentieth of what we spend on defense. But they won’t, because that $48 billion might require raising taxes on wealthy people. And that’s the one thing the bipartisan consensus will never allow.
Retirement Inequality: Two Americas, One in a Mansion and One in a Studio Apartment
Let’s zoom out and look at the big picture, because the retirement crisis isn’t affecting everyone equally. For the top 10%, the system is working great. For everyone else, it’s a disaster.
According to the Federal Reserve’s Survey of Consumer Finances (2022), here’s the median retirement account balance by wealth percentile for households aged 55-64:
• Bottom 50%: $0
• 50th-75th percentile: $60,000
• 75th-90th percentile: $274,000
• Top 10%: $1,213,000
The top 10% have 20 times more retirement savings than the 75th-90th percentile, and infinitely more than the bottom half (who have nothing). And these numbers only capture retirement accounts—they don’t include other assets like real estate, stock portfolios outside of retirement accounts, or business equity. When you include all assets, the gap is even wider.
Why does this gap exist? It’s not because the bottom 50% are irresponsible or don’t value retirement security. It’s because the system is designed to favor high earners at every level:
First, contribution limits favor the wealthy. In 2024, you can contribute up to $23,000 to a 401(k) if you’re under 50 ($30,500 if you’re over 50). If you’re making $50,000 per year, contributing $23,000 means living on $27,000 after taxes—impossible. If you’re making $250,000 per year, contributing $23,000 is easy, and it reduces your taxable income significantly.
Second, the tax benefits are regressive. A 401(k) contribution reduces your taxable income, which saves you money on taxes. But the amount you save depends on your tax bracket. If you’re in the 12% tax bracket and contribute $5,000, you save $600 in taxes. If you’re in the 37% tax bracket and contribute $23,000, you save $8,510 in taxes. The government is literally giving rich people bigger subsidies for retirement savings.
Third, employer matches favor higher earners. According to Vanguard’s 2023 report, employers with higher-paid workforces provide more generous matches. Companies in professional services, finance, and tech often match 6-8% of salary. Companies in retail, hospitality, and service industries often match 3% or less—or nothing at all. So the workers who can least afford to save get the smallest incentives to do so.
Fourth, investment returns favor the wealthy through access to better options and the ability to weather market volatility. Wealthy investors have access to private equity, hedge funds, real estate investments, and other alternatives that aren’t available in typical 401(k) plans. And during market crashes, wealthy investors can hold their positions (or even buy more), while lower-income workers often have to stop contributing or even withdraw money early (incurring penalties and taxes) to deal with emergencies.
The result is a retirement system that amplifies inequality rather than reducing it. The people who need retirement security the most—lower and middle-income workers—get the least from the system. The people who need it least—wealthy people who would be fine without 401(k)s or pensions—get the most.
How Other Countries Do Retirement: Turns Out It’s Not That Hard
Here’s the thing that should make every American furious: retirement security is not an unsolvable problem. Other wealthy countries figured this out decades ago. They have systems that actually work for everyone, not just the rich. Let’s look at a few examples.
The Netherlands: The Dutch have a “three-pillar” system. The first pillar is a universal state pension (AOW) funded by taxes—every resident gets it at age 67, regardless of work history. The second pillar is occupational pensions—nearly all workers are covered by defined-benefit pensions through their industry or employer (95% coverage). The third pillar is voluntary private savings. The result? The Netherlands consistently ranks as having the best retirement system in the world. Dutch retirees have a poverty rate of just 3%, compared to 10% in the U.S.
Denmark: Similar three-pillar system with near-universal pension coverage. The average Danish retiree receives about 80% of their pre-retirement income from a combination of the state pension and occupational pensions. Danish retirees have one of the lowest poverty rates in the world.
Australia: Australia has mandatory “superannuation”—employers must contribute 11% of every worker’s salary to a retirement account (rising to 12% by 2025). This is on top of wages, not instead of wages. Every worker builds retirement savings automatically. Australia also has a means-tested Age Pension for low-income retirees. The system is far from perfect (fees are a problem), but it’s miles ahead of the U.S. because it’s universal and mandatory.
Canada: The Canada Pension Plan (CPP) is more generous than U.S. Social Security and covers more workers. Canada also has mandatory employer pensions for many workers. The result is an elder poverty rate of 12.5%—higher than Denmark or the Netherlands, but better than the U.S. (which is above 10% and rising).
The common themes in successful retirement systems are: universality (everyone is covered), mandatory participation (employers must contribute), pooled risk (defined benefits, not defined contributions), and adequate public pensions (so people don’t rely entirely on employer plans or private savings).
The United States has none of these things. Social Security is underfunded and under constant attack. Pension coverage has collapsed. 401(k) participation is voluntary and inadequate. And we’ve created a system where retirement security depends on your ability to navigate financial markets, pick the right investments, avoid high fees, and hope you don’t retire right before a market crash.
Other countries treat retirement security as a social good—something that benefits everyone when seniors aren’t living in poverty. The United States treats it as an individual responsibility—and then riggs the system so that most people fail.
Who Benefits From This System? Follow the Money (Again)
So if the 401(k) system is failing most Americans, who’s benefiting? Let’s name names and count dollars.
First, the financial services industry. We already covered the $100 billion in annual fees. But let’s look at specific companies and their executives:
• Fidelity Investments: $10.3 trillion in assets under management (2023). CEO Abigail Johnson: net worth $27.4 billion.
• BlackRock: $9.1 trillion in assets under management (2023). CEO Larry Fink: 2022 compensation $26.3 million.
• Vanguard: $7.7 trillion in assets under management (2023). Vanguard is structured differently (owned by its funds, which are owned by investors), so there’s no billionaire CEO, but the executives are still paid millions.
• Charles Schwab: $7.4 trillion in client assets (2023). Founder Charles Schwab: net worth $11.2 billion.
• State Street: $4.1 trillion in assets under management (2023). CEO Ronald O’Hanley: 2022 compensation $19.9 million.
Second, corporations that eliminated pensions. The corporate savings from pension elimination are massive. General Electric, for example, froze its pension in 2012, saving an estimated $1 billion annually in pension contributions. That money went to shareholders and executives instead of workers’ retirement security. Boeing froze its pension for new hires in 2014. IBM closed its pension to new employees in 2006 and froze it for existing employees in 2008. The list goes on.
Third, private equity firms that loot pensions. We already named some of them: Bain Capital, KKR, Apollo Global Management, ESL Investments. Their business model relies on being able to load companies with debt and strip assets (including underfunding or offloading pensions) while extracting fees and dividends. If they were forced to actually fund the pensions of the workers at the companies they buy, the returns would be much lower. So they’ve lobbied successfully to make pension looting legal.
Fourth, politicians who take money from all of the above. The financial services industry contributed $556 million to federal candidates in the 2022 election cycle (OpenSecrets). That money buys a lot of silence about 401(k) fees, pension cuts, and Social Security reform.
Here’s the breakdown:
• Securities & investment firms: $216 million ($131M to Republicans, $85M to Democrats)
• Insurance companies: $82 million ($48M to Republicans, $34M to Democrats)
• Commercial banks: $92 million ($51M to Republicans, $41M to Democrats)
• Private equity & hedge funds: $128 million ($67M to Republicans, $61M to Democrats)
Notice that both parties take the money relatively evenly. That’s why both parties support the 401(k) system, both parties stay quiet about Wall Street fees, both parties allow private equity to loot pensions, and both parties talk about “reforming” Social Security by cutting benefits rather than eliminating the wage cap.
The retirement crisis is not an accident. It’s not the result of demographic changes or people living longer or any other excuse you’ll hear. It’s the result of deliberate policy choices made by politicians who are paid by the industries that profit from retirement insecurity.
What Can Be Done? Individual Actions and Systemic Solutions
Let’s start with what you can do as an individual to protect yourself in this broken system, acknowledging that individual actions don’t fix systemic problems—but they might help you survive.
Individual Strategies
1. Minimize fees ruthlessly. If your 401(k) offers low-cost index funds (look for expense ratios under 0.1%), use them exclusively. Vanguard’s Total Stock Market Index Fund (VTSAX) has an expense ratio of 0.04%. Fidelity’s equivalent (FSKAX) is also 0.015%. If your plan doesn’t offer low-cost index funds, complain to HR and keep complaining. High fees are theft.
2. Contribute enough to get the full employer match, if there is one. If your employer matches 50% of the first 6% you contribute, contribute at least 6%. That’s an immediate 50% return on your money—you won’t find that anywhere else. But don’t contribute more than the match if you have high-interest debt to pay off.
3. Consider a Roth IRA for additional savings. Roth IRAs have income limits ($161,000 for single filers in 2024), but if you’re eligible, they’re better than traditional 401(k)s for many people. You pay taxes now (when you’re likely in a lower bracket) and withdraw tax-free in retirement. Plus, Roth IRAs have no required minimum distributions, so you can leave the money to your heirs tax-free.
4. Delay Social Security until age 70 if you can. Every year you delay past your full retirement age (67 for most people), your benefit increases by 8%. Delaying from 67 to 70 increases your benefit by 24% for life. If you live into your 80s, that’s a massive increase in total lifetime benefits.
5. If you’re misclassified as a contractor when you should be an employee, consider filing a complaint with your state labor department or the IRS. You can file IRS Form SS-8 to get a determination of your worker status. If you win, the company may owe you back benefits, including retirement contributions. (This is risky if you want to keep the work, but it’s an option.)
Systemic Solutions
Individual strategies help at the margins, but they don’t fix the system. Here’s what we actually need to do as a society:
1. Strengthen and expand Social Security. Eliminate the wage cap so that everyone pays 6.2% on all earned income. This would fully fund Social Security for 75+ years. Simultaneously, increase benefits—the average benefit is $1,907/month, which is barely above the poverty line. We can afford to do better.
2. Eliminate federal income tax on Social Security benefits. It’s absurd to tax benefits that are already inadequate. This would cost about $48 billion per year—0.6% of the federal budget. Do it.
3. Create a public retirement savings option. The government should offer a low-cost, default retirement savings plan (like the Thrift Savings Plan available to federal employees) that’s available to all workers. Auto-enroll everyone at 6% of salary with a government match for lower earners. Use passive index funds with expense ratios under 0.05%. This would eliminate the $100 billion annual fee extraction by Wall Street.
4. Require employers to contribute to retirement accounts, not just offer them. Australia requires 11% (rising to 12%). We should do the same. Every employer must contribute at least 6% of every worker’s salary to a retirement account. This eliminates the coverage gap and ensures that even low-wage workers build retirement savings.
5. Crack down on worker misclassification. Increase IRS and state labor department funding to enforce worker classification rules. Fine companies that misclassify employees as contractors. Make misclassification a criminal offense for repeat offenders. Workers who should be employees need access to benefits, including retirement plans.
6. Ban private equity from acquiring companies with defined-benefit pensions unless they fully fund those pensions. No more looting. If you want to buy a company, you take on its pension obligations—fully funded, no offloading to insurance companies, no dumping on the PBGC. If that makes the deal uneconomical, good. That means you were planning to profit by stealing from workers.
7. Cap 401(k) fees. No fund offered in a retirement plan should charge more than 0.25% annually. Period. If you can’t manage a diversified portfolio for a quarter of a percent, you’re incompetent or greedy. Most likely both.
8. Restore corporate pension requirements. We could mandate that companies above a certain size provide defined-benefit pensions, or we could tax companies that don’t provide them. The race to the bottom on retirement benefits only happened because we allowed it. We can stop it.
These solutions are not radical. They’re common sense, and most of them are already working in other countries. The reason we don’t have them isn’t because they’re impossible—it’s because Wall Street, corporations, and private equity firms make billions of dollars from the current broken system, and they donate millions to politicians to keep it broken.
Conclusion: The Retirement Heist Continues
The disappearance of pensions and the failure of the 401(k) system is not a story of demographic changes or people living longer or workers making bad choices. It’s a story of wealth extraction—a deliberate, systematic transfer of money from workers to Wall Street, from the bottom 90% to the top 10%, from people who work for a living to people who profit from financial engineering.
For 40 years, we’ve been told that 401(k)s give us “freedom” and “control.” The reality is that they give us risk, fees, and insecurity. They enrich financial companies while leaving most Americans terrified of retirement. And both political parties have supported this system every step of the way, because both parties take money from the industries that profit from it.
Barbara, from the beginning of this post, is retiring into poverty not because she was lazy or irresponsible. She worked hard for 38 years. She saved in the 401(k) her company forced on her. She paid her taxes, including taxes on her Social Security benefits. She did everything right. And the system failed her anyway.
Her company’s CEO, meanwhile, retired at 59 with a $420,000 annual pension, lifetime health insurance for himself and his spouse, and a golden parachute. He’ll spend his retirement traveling the world, dining at expensive restaurants, and never worrying about money. Barbara will spend her retirement choosing between groceries and medications, living in a small apartment, and hoping she doesn’t live too long because she can’t afford to.
This is the system working as designed. The question is: are we going to keep accepting it?
The retirement crisis affects all of us in the bottom 90%, regardless of political party. Red state or blue state, Republican or Democrat, union or non-union—we’re all facing the same rigged system. The longer we let culture war nonsense distract us from the class war being waged against us, the more our retirement security gets looted by Wall Street and corporations.
Retirement security is not a partisan issue. It’s a wealth extraction issue. And until we recognize that both parties are complicit in the theft, nothing will change.
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Next in the series: Part 18 – The Tax Scam: Why Billionaires Pay Less Than Teachers
Coming up: How the tax code was deliberately rigged to favor investment income over work, why carried interest is legalized theft, and why we’re taxing teachers at higher rates than hedge fund managers.
Even that's Odd 
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