A bipartisan group of former legislators, academics, former state and federal government employees and business owners joined forces over the past two years to come up with solutions to America’s retirement security problem.
The Bipartisan Policy Center launched the Commission on Retirement Security and Personal Savings in 2014.
“They really tried to look at it from a comprehensive standpoint,” says Shai Akabas, associate director of economic policy for the Bipartisan Policy Center.
The commission looked at 401(k)s, personal savings, pensions and Social Security.
“They really thought that looking at the complete picture of retirement savings and income is what is necessary to come up with solutions that work well together and can substantially improve people’s retirement outcomes,” says Akabas.
The BPC report addresses six key retirement challenges: many Americans’ lack of access to a workplace retirement plan; not saving enough for short-term needs, leading to a raid on retirement savings; risk of outliving retirement savings; failure to use home equity as a form of retirement savings; lack of basic knowledge about personal finance; and problems with Social Security, including “unsustainable finances, an outdated program structure and failure to provide adequate benefits for some retirees.”
If solutions in its recently released report are implemented, the middle class will see a 50% increase in their savings by the time they reach retirement, according to the BPC.
“These are substantial increases over what is expected. They would really lift tons, millions, of individuals out of poverty in retirement,” Akabas says.
Addressing the lack of access to workplace retirement plans, the commission proposed the creation of a new workplace option called Retirement Security Plans that would allow small businesses to “transfer most responsibilities for operating a retirement savings plan to a third-party expert, while still maintaining strong employee protections,” the report says.
These plans would be multiple employer defined contribution plans. Any business could participate in them and they wouldn’t be industry specific.
The commission also proposed enhancing President Obama’s myRA program so that part-time, seasonal and low-wage workers would also have an opportunity to save for their retirement.
“About half of the private-sector workforce not contributing to a plan do have access to one or don’t have any access at all.”
“About half of the private-sector workforce is either not contributing to their workplace plan or don’t have any access at all,” Akabas says. “While all those individuals could save in IRAs, we see very low levels of savings by individuals in those accounts. There are a lot of impediments and barriers.”
Workers end up with better retirement savings if they can save through payroll deduction.
“The main goal of this would be to achieve access and hopefully increase the number of people contributing,” he says.
For many small employers, it is too costly to offer employees a retirement savings plan like a 401(k).
“In the current system, the administrative and legal responsibilities and the fiduciary obligations that come with sponsoring a plan is a large barrier to a lot of these employers,” says Akabas. “What the Retirement Security Plan does is offload all those responsibilities onto a third party who is capable and prepared to take on those functions.”
Once changes are made to myRA and Retirement Security Plans are in place, the commission recommends that a national minimum coverage standard be implemented by 2020, he says. Companies with at least 50 employees would be required to enroll employees in one of three options, either a standard DB or DC plan, a Retirement Security Plan or a myRA.
“Our commission got to this agreement because modeling showed this would have a dramatic impact on savings for retirement, especially for the middle class,” Akabas says.
Reforming Social Security is another big push of the commission. According to the report, “any comprehensive effort to improve retirement security must shore up and modernize” Social Security.
The commission recommends “adjustments to Social Security’s tax and benefit levels to reflect changing demographics; better target benefits on those who are most vulnerable in old age, including surviving spouses and workers in low-earning occupations; preserve reasonable intra- and inter-generational equity; and more fairly reward work.”
