The road to retirement for millions of Connecticut citizens is crumbling. As our employer-based retirement system continues to deteriorate nationwide, a new study shows that more than 50 percent of our state's working-age residents are not covered by any employer-sponsored plan.

According to the Schwartz Center for Economic Policy Analysis of the New School, employer sponsorship of retirement plans has declined precipitously. Between 2000 and 2010, employers offering a retirement plan declined from 66 percent to 59 percent. In other words, four out of 10 workers residing in Connecticut do not have access to a retirement plan at work.

The implications of this trend are dire: Without a pension, more and more retirees and those nearing retirement face a bleak future of downward mobility subsistent on meager Social Security benefits, limited personal savings, aid from friends and family, and/or government assistance.

The Center for Retirement Research at Boston College tell us that the median household retirement account balance in 2010 for workers between ages 55-64 was just $120,000. For people expecting to retire at around age 65, and to live to 80 or so, this will provide a trivial supplement to their Social Security benefits. Given increasing life expectancies and inflation, this sum is insufficient to last through a typical retirement and could easily be depleted in a matter of a few years.

And that's for people who actually have a retirement account. A third of households do not. For these people, their sole retirement income comes from Social Security, for which the current average monthly benefit is $1,230.

How did we get to this point?

In one of his recent New York Times columns, Thomas Friedman waxed enthusiastic about living in a "401(k) world" where "self motivated" workers will thrive, masters of their own financial destiny. "If you are self-motivated, wow, this world is tailored for you. The boundaries are all gone."

For the Thomas Friedmans of the world, and other very wealthy individuals, the 401(k) world may be wonderful. But for middle-class earners living paycheck to paycheck, it is a nightmare. And that's not their fault; the reasons are systemic.

Over the past three decades, against a backdrop of stagnant wages and stock market volatility, more and more employees fortunate enough to have retirement plans have been shifted from defined benefit (DB) to defined contribution (DC) plans, lured by the promise of hefty returns and enhanced consumer sovereignty. But saving for retirement is not like buying a pair of shoes or an appliance. The reality of DC plans has been that most middle class savers end up either undersaving, overtrading, investing in excessively high-fee vehicles or some combination of the three.

As Reuters financial blogger Felix Salmon has written, "the 401(k) is a way for both your government and your employer to disown you, and to leave your life savings to be raided by the financial services industry and its plethora of hidden and invidious fees ... (F)orcing savers to take matters into their own hands is tantamount to feeding them directly to the Wall Street sharks."

According to research by the National Institute on Retirement Security, DB plans held by public employees are much more cost-effective and less expensive than 401(k)-style retirement plans, costing roughly half as much to provide the same level of retirement benefit to public sector workers.

One study of the difference in returns by the global benchmarking firm CEM Benchmarking finds that between 1998 and 2005 DB plans had annual returns 1.8 percent points higher than DC plans. Over 30 years, a 1.8 percentage point difference would result in about a 70 percent larger retirement fund.

Salmon adds, "The well-kept secret about old fashioned pension funds is that, for the most part, they're actually very good at generating decent returns for their beneficiaries. They tend to have extremely long time horizons, and are run by professionals who know what they're doing and who have a fair amount of negotiating leverage when they deal with Wall Street."

By contrast, 401(k)s contain a lot of undesirable instability. Imagine one worker retiring comfortably in March of 1999 (the height of the tech bubble), whereas another seeing their retirement wiped out in 2001 (the nadir of the bubble).

Moreover, research shows that most middle class families, left to their own devices, simply do not make the right choices when it comes to retirement savings, unaware of the myriad complexities of investing and borrowing, and leaving them vulnerable to being ripped off.

Finally, the standard 401(k) has become a feeding trough for highly compensated Wall Street professionals extracting exorbitant fees in exchange for poorly performing investment products. It is estimated that the average family with a 401(k) pays more than $155,000 in fees over the course of their working career.

One legislative remedy under discussion in Hartford is a voluntary, portable, state-administered defined benefit plan, funded by workers and their employers. Such a plan would afford Connecticut residents a low-cost way to save for retirement without being whipsawed by the vagaries of the stock market. Whatever bottom-up scheme is ultimately chosen, we should all agree that everyone in our state deserves the right to retire in comfort and security.
