Pension protests turn violent in France and Germany

Pension protests in France and Germany have turned violent over multiple weeks, the Wall Street Journal reported on Nov. 1, as residents demonstrate against the erosion of state-run retirement benefits.

The French plan at the center of the unrest let most workers retire at 62 and is funded by taxes, 401(k) Specialist reported, citing the Journal. Younger workers pay an outsized share of taxes toward older workers' retirement, and some worry the legal retirement age may rise or that promised benefits may not materialize, the report says.

For US plan sponsors and advisors, the contrast lands on plan design terms that can change a participant's retirement income: deferral rates, employer contributions, defaults and the investment menu. In the US model the report describes — employer-sponsored accounts supplementing Social Security, with ERISA tax benefits encouraging contributions — those choices sit with the sponsor, and funding risk sits in each participant's account rather than a government budget.

Kevin Crain, executive director of the Institutional Retirement Income Council, said the two models divide on accountability. "Under their system, I think there's less personal accountability for the individual, but there's greater demand from the individual, as well," he said. "And you have a massive structural financial issue with that, when you look at the changing population demographics." Crain, formerly head of retirement research at Bank of America Merrill Lynch, said the US arrangement, with employees contributing alongside employers, produces "a much more positive situation in terms of lessening the anxiety" than a single-source system does.

The report argues that spreading responsibility across worker, employer and state keeps the US clear of the insolvency questions it says are taking root in Europe, while allowing that the defined contribution system may not be perfect. It also ties the protests to questions about Social Security's future in the US.