In another life, we must have been very good.

I talk with a number of retired teachers whose careers roughly approximated my own. I began teaching in 1966 and retired in 1999.

All the folks with whom I speak seem to agree that we taught in what we view as the "golden age" of education. American schools were the class of the world. Schools hired teachers and then let them teach. Teachers were encouraged to be creative in their work. Efforts were not being made to make the curriculum "teacher proof." When you called home about a problem, parents got busy and backed you up. Their first thought was not to hire a lawyer.

The pay wasn't great, but most taxpayers felt you did a good job for too little money. They tried to make the pay better and they succeeded.

Then there was the pension. We didn't think it was something unusual. When I started teaching more than half of American workers were covered by a pension plan at work. Tier I was easy to figure out. After 33 years of teaching I receive 66% of my final average salary.

Along with our pensions--my wife was a teacher, too--we receive Social Security payments each month. NY teachers may not be aware of it, but there are other states in which public employees--including teachers--cannot participate in the Social Security system. Their pension is their only "guaranteed" income. (The quotation marks are due to places such as Detroit.)

 I can't afford a yacht, but my wife and I can live comfortably and pay our bills. To many other Americans, that seems like a far off dream.

PBS ran a Frontline documentary in April titled Retirement Gamble. I just got around to watching it, and you can watch it on your computer by clicking on the link.

I already knew that America is in a retirement crisis. There have been several posts to this blog concerning how few Americans are covered by 401k plans at work (42%) and what lousy alternatives these plans are compared to traditional pensions.

What had not sunk in for me is how truly awful most 401k plans are and the reason why we will probably never get rid of them.

Remember, 401k plans were never expected to replace traditional pensions. They were created as a "perk" for highly-paid executives. However, these plans provided a loophole big enough to allow companies to ditch their traditional pension plans. And they did.

It really sounded like a win-win. The employer would match the employee contribution (up to a point), they were portable when the employee changed jobs, and the employee was told that they would be in charge of their own money.

And here's where things get a bit nefarious. The employee really can't pick any investment for their money in a 401k. They only get to pick among a few mutual funds chosen by the 401k administrator. Funds which, by the way, have almost certainly paid a fee to the 401k administrator to be part of the plan's choices.

Guess who those fees wind up being charged to. That's right, they come off the top before any earnings are distributed to the plan participants. And, of course, these funds are actively managed--as opposed to "index" funds--and the management companies take their management fees off the top as well.

Here's an interesting example: Suppose you invest your 401k money into a fund that earns an average of a 7% return over 50 years. Now suppose that this fund charges a 2% management fee each year. For every $100,000 in returns over the course of those 50 years, those fees will eat up $65,000. Oh the magic of compound interest!

That's right. As Jack Bogle, founder of Vanguard says: "You put up 100% of the capital. You took 100% of the risks, and you get about 30% of the returns!"

And that is why it's going to be almost impossible to get rid of the 401k. The financial services industry, which used to be about 7% of the economy but is now over 40%, sees all of these 401k fees as a cash cow. And they're still working on getting Social Security "privatized" so that they can do the same thing they've already done with 401k accounts!

Take a look at the film and you will understand why private sector workers are jealous of public sector pensions. They have every right to be angry. They have been royally screwed! Their anger, however, is misplaced. Instead of railing against those workers who still have traditional pensions, they should be demanding that we go back to the system of the "three-legged stool" which worked so well. The 3 legs were pension, Social Security and individual savings.

In a rational world, Americans would look at this situation and say: "Hey, every other wealthy country has figured out how to provide better retirement security than us. Congress, get off your butts and solve this problem!"

Unfortunately, the banks and other financial services have armies of lobbyists with campaign contributions in hand. How many lobbyists do 401k owners employ?