06/28/2011 01:04 pm ET | Updated Aug 28, 2011

If the Democrats Lose the Senate Our Retirement Is Toast

A labor lawyer has a great idea for not only saving Social Security but making it so it's almost as generous as those in other first-world countries.

As Tom Geoghegan recently observed in the New York Times, Americans have two pension problems -- our Social Security System pays one of the paltriest rates in the world and most folks have hardly any money in their 401(k) accounts. The only people for whom Social Security replaces 70% of their wages are those making minimum wage at age 65, or around $15,000. Since the median wage for people in their 60s is around $65,000 and the average American only has around twice that amount in their 401(k) and rollover accounts, attention must be paid, given that you can only withdraw around $400 a month from a $120,000 nest egg without running out of money.

Geoghegan's plan is to boost Social Security payments to they replace half the average workers earnings by lifting the cap on the payroll tax (without paying more benefits to those above it) and raising the payroll tax by roughly 1 percentage point for employees and employers, among other measures.

Former SEIU President and deficit commission member Andy Stern also thinks the Social Security System would be more robust by investing at least some of its assets in stocks, as is the case in Canada. I wholeheartedly agree -- as I pointed out in my book, America, Welcome to the Poorhouse, the long-term performance of stocks is vastly superior to government bonds or Treasury Bills. But rather than "privatize" the system as proposed by Dubya in 2005, which would allow workers to attempt (and fail) to time the market with brokerage accounts, I'd have the funds managed by a government-sponsored enterprise that invests in a mix of stock and money market index funds, as is the case with the Thrift Savings Plan covering many federal workers.

While Geoghegan's proposal is a sound one, I still believe that we need mandates for more generous employer contributions to 401(k) plans, as is the case with most other countries' versions of them, so that they walk and talk like actual pensions. It's not just the middle-class who are at risk but virtually every worker in the private sector who doesn't have "chief" and "executive" in their job title. As I pointed out in an earlier post, the median 401(k) account balance for Fidelity Investments' clients between the ages of 60 and 64 who earn more than $100,000 was less than $275,000, and only 3% of Vanguard's participants have accumulated more than $250,000.

We Boomers are not only pension-poorer than our parents but we' re more likely to still have big expenses, including mortgages, which will lead to the Next Mortgage Meltdown -- somebody paying off a $100,000 mortgage who can only spend $400 a month on living expenses can't afford the $700 a month mortgage payments. More than 50% of Boomers between the ages of 55 and 65 were paying mortgages in 2007 -- on average owing more than $140,000 -- according to the Federal Reserve Board's Survey of Consumer Finances. That amount is nearly three times what was owed by that age group in 1989, when only 34% were still making mortgage payments.

Expect any retirement reform that involves mandates and/or tax hikes to provoke hysteria from the Repubs -- including members of the Supreme Court, as was the case when Labor Secretary Frances Perkins first launched the idea of Social Security when FDR occupied the White House. As observed in the book, The Woman Behind the New Deal, a group of four justices were known as "the battalion of death" against worker-friendly legislation. The business lobby was fiercely opposed as well -- at Congressional hearings on Social Security, the National Association of Manufacturers attacked the bill as the "ultimate socialistic control of life and industry."

At least Social Security ultimately prevailed, unlike today when the Party of No controls the House of Representatives. Anything that involves a tax hike is dead in the water; as Bloomberg BusinessWeek observed, given that 233 of the 240 House Republicans and 40 of the 47 Republican senators have signed anti-tax activist Grover Norquist's so-called Taxpayer Protection Pledge. That's why Republicans pulled a temper tantrum and stormed out of debt-reduction talks led by VP Joe Biden last Thursday.

While a new group called Priorities USA has been formed to keep Obama in the White House, it's not clear whether their strategy includes maintaining control of the Senate. Frankly, it's not going to matter if Obama keeps his job if he can't do his job. Given that Republicans need 10 seats to win the 51-seat majority in the Senate and six Democrats are scheduled to retire next year, if you count technically Independent Joe Lieberman, things don't bode well. A total of nine seats are "vulnerable" if you include those who are unlikely to get re-elected, according to US News and World Report. If the GOP captures the Senate, they not only control the votes, they get to pick two thirds of the witnesses at any hearings. So we can assume that the likelihood of hearings on remedies to our pension shortfall would be infinitesimal.

Somebody needs to mobilize a group to reverse the bloodless coup on Capitol Hill to ensure these "vulnerable" Democrats keep their jobs and Americans keep their financial futures. With the election only 17 months away, time's a wasting.