3 steps toward fixing America's retirement system

The U.S. retirement system clearly has shortcomings that are leading to widespread insecurity among older workers. In recognition of this anxiety, recent meetings in Washington, D.C., focused on the system's much-needed modernization as the Bipartisan Policy Center (BPC) launched its Funding Our Future initiative. It focuses on three significant changes that could significantly improve retirement for many U.S. workers:

1. Put Social Security on a sustainable financial path. More than two-thirds of Americans worry that Social Security won't be there when they need it. Yet an achievable combination of modest benefit adjustments and revenue enhancements with a net value of 2.84 percent of payroll could put the system on a long-term sustainable path. 
2. Close the retirement plan coverage gap. Roughly half of all U.S. workers, often at small businesses, aren't eligible to participate in a workplace retirement savings plan. Research shows that being in such a plan significantly improves how much people save for retirement. Ideas to address this problem include allowing small employers to pool administrative resources and take advantage of group buying power through multiple employer plans and encouraging states to offer retirement plans to employees of small businesses.
3. Encourage employer-sponsored retirement plans to offer lifetime retirement income options. Converting your retirement savings to reliable lifetime income is a complex task that's beyond the skills of most older workers. Yet most 401(k) plans don't offer such conversion options, often due to fear of being sued by participants. Legislation could protect employers from liability if they follow specified guidelines.

I attended the BPC meetings as a representative of the Stanford Center on Longevity, which is providing research in support of the BPC initiative. 

I also attended a panel discussion that was convened by the American Academy of Actuaries (AAA), titled "Modernizing the U.S. Retirement System." The panel presented ideas and themes that are consistent with the BPC initiatives, which indicate a clear and compelling need to focus on fixing these retirement shortcomings.

Republican and Democratic lawmakers recently introduced the Retirement Enhancement and Savings Act of 2018 (RESA), which would address some of these issues. For instance, it would enable multiple employer plans, which could help address the coverage gap. It would also make it easier for employers to allow older workers to purchase lifetime annuities in their 401(k) plans. 

However, RESA falls short of enabling employers to offer a robust menu of distinct retirement income options that could truly meet the needs of a variety of older workers.

I closed my remarks at the AAA panel with an appeal to lawmakers: "There are many good ideas that can help fix the gaps in the U.S. retirement system ... [which] should receive bipartisan support, since Americans from all walks of life would benefit. Let's put aside partisan squabbling and work together to help Americans' retirement security."

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Steve Vernon

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Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.

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