A retirement security report from all-star lineup of pundits and professional went largely unnoticed upon its release in June, but the recommendations from its influential authors would have a massive impact on 401(k) plans.
Securing Our Financial Future: Report of the Commission on Retirement Security and Personal Savings was released last month from the Bipartisan Policy Center to little fanfare, and includes such notable names as Teresa Ghilarducci of The New School and the Employee Benefit Research Institute’s Dallas Salisbury.
Among other things, it calls for new efforts to improve retirement plan access for workers and limiting the amount of damage done from 401(k) plan “leakage.” Specifically, the reports recommends the following:
Access—The creation of a new, streamlined option called “Retirement Security Plans” that would allow small employers to transfer most responsibilities for operating a retirement savings plan to a third-party expert, while still maintaining strong employee protections. They would also enhance the existing myRA program to provide a base of coverage for those workers, such as part-time, seasonal, and low-earning workers, who are least likely to be offered a retirement savings plan.
Plan leakage—The authors note that “insufficient short-term savings can lead workers to draw down their retirement accounts, incurring taxes and (often) penalties.” This leakage of retirement savings jeopardizes many Americans’ long-term retirement security. To address this issue, they recommend “clearing barriers that discourage employers from automatically enrolling their employees in multiple savings accounts, one for short-term needs and another for retirement.”
Lifetime income—They recommend that plan sponsors integrate sophisticated, but easy-to-use, lifetime-income features within retirement savings plans. For example, it should be easy for plan participants to purchase a guaranteed lifetime-income product in automatic installments. Plan sponsors could establish a default lifetime-income option or offer an active-choice framework, in which participants are asked to choose options from a customized menu.
Home equity—They also propose to “strengthen programs that support and advise consumers on reverse mortgages, which can be a good option for some older Americans. Establishing a low-dollar reverse-mortgage option would facilitate smaller loans while reducing fees for borrowers and risk for taxpayers.”
Financial education—“Exposure to financial knowledge and planning should begin early in life, with schools, communities, employers, and federal and state governments all working to foster a culture of savings and to position individuals to make prudent financial choices,” the authors note. “We support a variety of approaches, including implementing recommendations from the President’s Advisory Council on Financial Capability, providing improved personal financial education through K-12 and higher-education curricula, and better communicating the consequences of claiming Social Security early.”
Social Security—They conclude by recommending adjustments to Social Security’s tax and benefit levels to 1) reflect changing demographics; 2) better target benefits on those who are most vulnerable in old age, including surviving spouses and workers in low-earning occupations; 3) preserve reasonable intra- and intergenerational equity; and 4) more fairly reward work.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
