How do we move forward toward a future of increased retirement savings prevalence and better lifetime income options? Do you agree with the Aspen Institutes ideas?
Forbes post, “How Do We Get From Here To There? A New Report On Moving ‘Toward A More Secure Retirement'”
Thanks for your post.
Here’s the perspective of a 40 year industry veteran, 30+ years in leadership roles for plan sponsors:
(5) Develop new ways to translate account balances into lifetime income. First, loans are not leakage unless they are not repaid. 90+% of plan loans are repaid. For comparison, hardship withdrawals are always leakage. The solution is called asset retention. Make the plan hospitable to former employees such that they can aggregate/consolidate assets in a plan they have some experience with. Give them access to funds via a tax preferred plan loan – allow them to initiate a loan after separation but prior to retirement using 21st Century electronic banking. See: https://www.psca.org/blog_jack_2019_46 See also: https://www.psca.org/blog_jack_2019_30 https://www.psca.org/blog_jack_2018_5
(2) Expand emergency savings programs. Sidecars are suboptimal. See: https://www.psca.org/blog_jack_2019_5 Oregon’s OregonSaves program requirement that the first $1,000 be invested in a cash equivalent is not an “emergency savings element”. It is a means by which the service provider can make a profit. Would you be surprised to know that the asset management fee for that account is 101 basis points? Such an investment decision could be challenged as a fiduciary violation if it were subject to ERISA.
(3) Third, create more retirement savings programs that extend beyond the single-employer norm. Multi-employer bailout anyone? Every American wage earner has had access to a tax preferred, individual account retirement savings plan for the last 37 years. It is called the IRA. For comparison, be wary of multiple employer plans where the employer is not involved as the plan sponsor, see: https://www.justice.gov/usao-id/pr/eagle-man-sentenced-over-17-years-prison-theft-retirement-plans
(4) Develop new ways to translate account balances into lifetime income. Something wrong with installment payouts, immediate annuities, longevity annuities, deferring commencement of Social Security until SSNRA or age 70? These options aren’t being used today. When Congress passed REACT and the Supreme Court decided Norris, plan sponsors responded by removing annuities for compliance purposes. It was only later than we had Executive Life where the fiduciary challenges became a priority concern. The issue is certainly not that we need new products.
(1) Expand mandated auto-IRA programs. The only liquidity for an IRA is a distribution. The Army study involves a 401(k) type plan that permits loans. However, the researchers incorrectly included loans as leakage on the first iteration. The most recent version of the study makes no conclusion regarding whether the participants debt burdens increased or declined. See: https://www.psca.org/blog_jack_2018_39
We know what works – 401(k) plans that incorporate automatic features and liquidity provisions that don’t trigger income and penalty taxes.
Thanks again. Jack