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January 2012 Policy Study, Number 12-1

   

Iowa's Privileged Class: Time for a Change!

    Introduction
   

 

The concept of “retirement” from the workforce and of having income or pension during that retirement is a very new idea in the overall timeline of human society.


By 1940, only about 15 percent of the labor force in the United States had a pension. People worked until they could not, and either saved for old age, were supported by children or family members, or worked until death.


Between 1940 and 1975, this changed until almost half of the private-sector workers had pensions, mostly Defined Benefit (DB) plans.[4] According to an article in the National Tax Journal, “increasing tax rates, wartime wage and price controls, and changes in collective bargaining rules” drove this.[5] Offering pensions was also found to increase worker loyalty and retention, and correspondingly reduce training costs.


The passage of the Employee Retirement Income Security Act (ERISA) in 1974 caused a decline in defined benefit plans in the private sector and resulted in an increase of Defined Contribution (DC) plans.


This was because costs for DB plans increased and tax-law changes enabled employees to take advantage of pre-tax payroll deductions. A less unionized and more mobile workforce also contributed to the decline.
As of 2008, only 24 percent of private-sector workers have a DB retirement plan, down from 76 percent in 1986.[6]


However, this was not the case in the public-employee area. By 1961, 45 states had DB pension plans, first for teachers, then the remaining government workers.[7]


According to the National Compensation Survey by the Bureau of Labor Statistics (BLS), 92 percent of the state and local government workforce are offered retirement benefits, such as a pension, and in many cases this is in addition to Social Security.[8]


Today the majority of the states still offer DB plans to their workers. This is because of both regulatory and workforce differences, including the fact that public-sector workers are “older, more risk averse, less mobile,” and, importantly, more unionized.[9]


In contrast to the private sector, where only 6.9 percent of workers are unionized, over 36 percent of government workers are union members, according to the Bureau of Labor Statistics.[10] As of 2010, over 7.6 million public-sector employees were union members, compared to just over 7 million private-sector workers. The unionization of government workers is also continuing to grow, while private-sector unionization is falling.


On a nationwide basis the highest unionization rates are in the education, training, and library (37.1 percent) and protective service (34.1 percent) occupations.[11] These are the same areas of concentration as in Iowa, where in 2010 almost 11.4 percent or 158,000 workers out of the total worker population were unionized.[12]

 

   

 

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