Several weeks back, I was invited to participate in a group conversation on retirement and the future.
The group of 15 (they’re listed at the end of the document that summarized the conclusions) that Politico
pulled together was diverse, both in background and philosophies, and
included academics, think tanks, advocacy groups, and the Hill. It was
conducted under Chatham House rules, which means that while our comments
might be shared, they wouldn’t be specifically attributed. That latter
point was helpful to the openness of the discussion, where several
individuals had opinions that they acknowledged wouldn’t be supported by
the groups they represent.
The conversation touched on a wide range of topics, everything from
the key challenges to the current system, the private sector’s role in
addressing these problems, the individual’s role (and responsibility)
for securing their own retirement, government’s role and the potential
for current congressional proposals to have an impact.
In view of the diversity of the group – the complexity of the topics –
and the 90-minute window of time we had to thrash things about – you
might well expect that we didn’t get very far. And, at least in terms of
new ideas, you’d be hard-pressed to say that we discussed anything that
hadn’t come up somewhere, sometime, previously. But then, this was a
group that – individually, anyway – has spent a lot of time thinking about the issues. And there were some new and interesting perspectives.
It seems that you can never have a discussion about the future of
retirement without spending time bemoaning the past, specifically the
move away from defined benefit plans, and this group was no exception.
There remains in many circles a pervasive sense that the defined
contribution system is inferior to the defined benefit approach – a
sense that seems driven not by what the latter actually produced in
terms of benefits, but in terms of what it promised. Even
now, it seems that you have to remind folks that the “less than half”
covered by a workplace retirement plan was true even in the “good old days” before
the 401(k), at least within the private sector. And while you can wrest
an acknowledgement from those familiar with the data, almost no one
talks about how few of even those covered by those DB plans put in the
time to get their full pension.
Beyond that. there was a clear and consistent understanding in the
group that health care costs and concerns were a big impediment to
retirement savings, both on the part of employers and workers alike.
People still make job decisions based on health care – on retirement
plan designs, not so much. And when it comes to deciding whether to fund
health care or retirement – well, health care wins hands down.
College debt was
another impediment discussed. Oh, individuals have long graduated from
college owing money – but never so many, and likely never so much
(though you might be surprised what an inflation-adjusted figure from 20
years ago looks like). It is, for many, an enormous draw on current
income – and one that has a due date that falls well before when
retirement’s bill is presented for payment.
Women have a unique set of challenges. For
many, the pay gap while they are working is exacerbated by the time out
of the workplace raising children. They live longer, invest more
conservatively, and ultimately bear higher health care costs – and
increasingly find themselves in the role of caregiver, rather than
bringing home a paycheck.
For many in the group, financial literacy
still holds sway as a great hope to turn things around. There are
plenty of individual examples of its impact, though the current research
casts doubt on its widespread efficacy. Surely a basic understanding of
key financial concepts couldn’t hurt (though don’t even get me started
on the criteria that purports to establish “literacy”) – but it’s a
solution that is surely at least a generation removed from the ability
to have a widespread impact.
On a related note, the group was generally optimistic about the
impact that the growing emphasis on financial wellness could have, both
in terms of encouraging better behaviors, and a heightened awareness of
key financial concepts. The involvement of employers, and
employment-based programs seems likely to enhance the impact beyond
financial literacy alone.
Ultimately, the group coalesced around four key recommendations:
The significance of Social Security in underpinning
America’s retirement future – and the critical need to shore up the
finances of that system sooner rather than later. The solution(s) here
are simple; cut benefits (push back eligibility or means-testing) or
raise FICA taxes. The mix, of course, is anything but simple politically
– but time isn’t in our favor on a solution.
The formation of a national commission to study and
recommend solutions. I’ll put myself in the “what harm could it do?”
camp, particularly in that, to my recollection, nothing like this has
been attempted since the Carter administration. We routinely chastise
Americans for not taking the time to formulate a financial plan –
perhaps it’s time we undertook that discipline for the system as a
Requirements matter – but don’t call it a mandate. Since
it’s been established that workers are much more likely to save for
retirement if they have access to a plan at work (12 times as likely),
but you’re concerned that not enough workers have access to a retirement
savings plan at work, there was little doubt that a government mandate
could make a big difference. There was even less doubt that a mandate
would be a massive lift politically. And not much stomach in the group
for going down that path at the present.
Expanded access to retirement accounts. While the
group was hardly of one mind in terms of what kind of retirement
account(s) this should be, there was a clear and energetic majority that
agreed with the premise that expanding access is an, and perhaps the – integral component to “securing retirement” for future generations.
And maybe even this one.
- Nevin E. Adams, JD
p.s. I'm on the left, towards the top of the picture above. Right next to Teresa Ghilarducci!