While not quite calling it a “crisis,” two young Senate guns says America’s private retirement system nonetheless faces major challenges in the modern economy, and they want to do something about it.
Citing research from the Employee Benefit Research Institute, they claim that over 40 percent of Gen X-ers will run short of money in retirement, and just under half of all private-sector workers aren’t participating in a retirement savings plan through their employer.
Therefore, Senators Todd Young, R-Indiana, and Cory Booker, D-New Jersey, recently announced new legislation to establish a federal commission charged with reviewing private retirement benefit programs. It will then submit a report to Congress on how to improve private retirement security in the United States.
This legislation follows a report last year by the Government Accountability Office that recommended the creation of an independent panel of experts to assess our current system and make recommendations to improve the nation’s collective retirement security. It has been nearly 40 years since a federal commission has conducted a survey of this scope.
The commission would include the Secretary of Labor, Treasury, Commerce, two presidential appointees, six U.S. Senate appointees, and six U.S. House of Representatives appointees.
It will be charged with:
- A comprehensive review of private benefit programs existing in the United States, with a particular focus on moving from defined benefit to defined contribution models.
- A comprehensive review of private retirement coverage, individual and household accounts balances, investment trends, costs and net returns, and retention and distribution during retirement.
- A comprehensive review of societal trends, including wage growth, economic growth, unique small business challenges, serial employment, gig economy, health care costs, life expectancy and shrinking household size, that could lead future generations to be less financially secure in retirement compared to previous generations.
- A comprehensive review of other countries’ retirement programs.
- Submitting to Congress recommendations on how to improve or replace existing private retirement programs upon the affirmative vote of at least three-quarters of the members of the Commission.
The commission would not review the Social Security program, however, as it is outside of its scope.
“Private retirement systems have undergone significant changes over the past 40 years as traditional pensions have become less common,” the Senators said in a statement. “Individuals must now prudently plan for their own retirement security through retirement savings accounts like 401k plans.”
Further, they add, the economy is undergoing another shift, as workers are more likely to work in the “gig economy,” defined by serial employment or the contingent workforce. For these workers, it’s “particularly difficult to save for their own retirement.”
“The most important thing we can do to ensure Americans’ retirement security is to protect and strengthen Social Security,” said Senator Booker. “Beyond that, we must work to address the shortcomings that have resulted from the shift from defined benefit pensions to defined contribution plans like 401ks. This bill will advance the conversation on individual retirement savings at a time when far too many have been left without the retirement they’ve planned for.”
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.
