This replacement of traditional pensions with 401(k)-type plans amounts to a massive shift of risk from employers to individuals. Under defined-benefit programs, employers bear the primary financial risk: They are obligated to provide the benefits regardless of how their investments perform. Under defined-contribution programs, workers invest their own money and suffer if the markets tank, as anyone with a 401(k) discovered in the 2008 meltdown.



But one group of workers has largely avoided this shifting of risk: public employees. Defined-benefit plans still cover fully 87 percent of public employees (compared with the one-third of private-sector workers at larger companies). In fact, the share of public-sector workers with traditional pensions now substantially exceeds the two-thirds of private-sector workers at bigger companies with access to either a defined-benefit or defined-contribution plan.

That advantage creates understandable resentment among workers who have lost such certainty. "The taxpayer who is hurting does not have a defined-benefit pension and is saying, 'Why should my taxes go up so this other group can have this very generous retirement?' " says John Rother, executive vice president of policy at AARP, the giant seniors' lobby.

Some of the pension benefits that public employees have negotiated are indefensible (particularly those allowing excessively early retirement). And over time, it's unsustainable for public employees to enjoy so much more retirement security than most of the taxpayers who fund their benefits. But the escalating conflict over whether public employees have won too much retirement security is obscuring the larger issue of whether everyone else has lost too much. "The question is, should we bring everyone down to what we've done in the private sector where the level of insecurity is [rising]?" says Alicia Munnell, director of the Center for Retirement Research at Boston College.

Using conservative assumptions, and including all potential sources of income (including Social Security, traditional pensions, home equity, and 401(k) plans), the Center for Retirement Research calculates that fully half of Americans will fail to generate enough postretirement income to approach their preretirement standard of living. The vulnerability is greater for younger than older baby boomers and greater still for Generation X. Those who rely on defined-contribution plans are substantially more exposed than the dwindling number with access to traditional pensions. The overall level of risk, Munnell warns, "is shockingly high."

The 401(k) has several virtues: flexibility, portability, autonomy. For the vast majority of workers, however, it is not producing enough assets for a secure retirement--either because they didn't invest enough, made bad investment choices, or simply suffered from market volatility. In all, workers who retire during the next 20 years can expect to replace only about two-thirds of their preretirement income, compared with about four-fifths for their parents' generation, the liberal-leaning think-tank Demos calculated in a recent study. "It's a tougher future than we're expecting; it's a tougher future than our parents had; and I think it's going to be demoralizing," Munnell says.