Workers to politicians: Fix the retirement system
With the November elections top of mind, the 17th Annual Transamerica Retirement Survey of Workers asked about priorities for the next president and Congress to help Americans prepare for a financially secure retirement. Their answers provide a good action plan for politicians. The top three answers, if addressed successfully, could make a substantial improvement in retirement security. Let’s take a look at what workers want most.
1) Fully fund Social Security
The top answer, cited by more than half (58 percent) of survey respondents, was to “fully fund Social Security by implementing reforms to ensure that it can pay guaranteed benefits for future generations of retirees.” This makes a lot of sense given the program’s popularity and the fact that the majority of aging baby boomers will be relying on Social Security as their primary source of retirement income.
AARP recently asked the Hillary Clinton and Donald Trump campaigns to prepare statements of their positions on reforming Social Security, and their answers were revealing. Clinton provided detailed, specific proposals to strengthen the system, many of which agreed with proposals from a detailed study by the Bipartisan Policy Center.
Trump had no proposals specific to Social Security and instead rehashed his main campaign positions about building “the wall,” reforming individual and corporate income taxes, renegotiating trade agreements, reforming immigration policies, repealing Obamacare and repealing the Dodd-Frank Act, which reformed the financial industry following the recent financial crisis.
On this issue, Clinton clearly has a better handle on reforming Social Security than Trump.
2) Encourage 401(k) plans to provide an option for lifetime retirement income
The second-most common answer, from almost half (46 percent) of survey respondents, was “encourage 401(k) and similar plans to offer the option to pay retirement benefits in a form that guarantees retirees a set monthly income for life.” This agrees with recent, thoroughly analyzed recommendations by two respected institutions: the Government Accountability Office (GAO) and the Bipartisan Policy Center.
The GAO study identified one significant barrier to this suggestion: employers’ vulnerability to lawsuits by participants who might experience unfavorable outcomes from their choices. The GAO included seven recommendations to the U.S. Department of Labor (DOL) that would offer employers limited liability relief. These recommendations could be implemented through DOL regulations or through legislation.
3) Allow part-time workers to participate in 401(k) plans
The third top answer, from more than a third (38 percent) of survey respondents, was “encourage employers with a 401(k) or similar plan to enable their part-time workers to participate in the plan.” This suggestion would go a long way to addressing the fact that only a little more than half of all workers participate in a retirement plan at work. Digging deeper into the numbers shows that more than 60 percent of full-time employees participate in a retirement plan versus less than 20 percent of part-time workers. Allowing part-time employees to participate in 401(k) plans would help boost that percentage.
In early 2016, President Obama made one proposal that could help, when he asked for legislation that would allow small, unrelated businesses to pool their resources under open Multiple Employer Plans (MEPs). Doing so would allow small businesses to combine for group buying power, which would reduce per capita costs for investment and administrative services.
Multi-employer plans are currently allowed for employees who are members of the same union but work for different employers. These plans have for decades successfully enhanced union workers’ retirement security. The goal with open MEPs is to build on both this retirement infrastructure and the advances 401(k)s have made to expand coverage to all types of workers.
Various retirement industry experts and the financial services industry support open MEPs, and Congress has also expressed interest in this option. Perhaps proposals for open MEPs will receive bipartisan support.
The Transamerica report contained six additional good suggestions that would also help improve workers’ retirement security and that at least one-fourth of workers cited.
The message to politicians is clear: It’s time to set aside the tiresome partisan bickering and actually do something effective to help American workers retire more securely. It’s time to make a positive difference in the lives of the constituents who elected you.