Pension plans have traditionally placed all the risk—primarily
investment and longevity risk—on employers, who responded by moving away from
pensions and toward 401(k)s. However, that move did not eliminate the risk—it
just shifted it onto individuals who are even less able to bear it.
USA Retirement Funds would make offering a pension benefit
more attractive by eliminating all the risk to employers. Instead of shifting
all the risk to individuals, USA Retirement Funds would act like insurance and
spread the risk across all participants in the plan. That means benefit
levels would have some flexibility to adjust to long-term market conditions,
but the risk on any one individual is greatly reduced.
Just to be clear, USA Retirement Funds would be managed by
the private sector and overseen by a board of qualified trustees. There
would not be a government guarantee, and the proposal relies on market forces—for example, competition between USA
Retirement Funds—to keep costs low.
Many employers currently offer excellent benefits, and they
could certainly keep those plans. However, we know that about half the work force
lacks access to a retirement plan, and those people are statistically much less
likely to save for retirement. Therefore,
under my proposal, employers who do not offer a pension or a 401(k)—without
automatic enrollment and a match—would have to automatically enroll their
employees in a “default” USA Retirement Fund and make modest contributions.
Employees could opt out if they wanted.
After two years of hearings and countless discussions with
industry experts, I believe USA Retirement
Funds are a win-win for working families and the employers. However, I intend
for my proposal to be the starting place in an evolving discussion, and I want
to work with the plan sponsor community to find practical solutions that
improve retirement security for everyone. If you have ideas, suggestions or
anything else to share, I encourage you to contact me at Retirement_Security@help.senate.gov.
Senator Tom Harkin
(D-Iowa) is the chairman of the Senate Health, Education, Labor and Pensions Committee.
Sen. Tom Harkin