Former GAO Leader Calls for a Retirement Rethink

David Walker, former head of the Government Accountability Office, called on the retirement industry to work alongside government and community leaders to build a better financial future for Americans.

Speaking at the Plan Sponsor Council of America’s 69th Annual Conference, The Honorable David M. Walker, currently senior strategic adviser in PwC’s Global Public Sector Practice, former Comptroller General of the U.S., and former head of the Government Accountability Office, said participants need to be educated about the need to plan and save for retirement, to invest well, preserve assets and to appropriately draw down assets in retirement.

Walker noted that Social Security should now be looked at as a foundation for retirement income, but not the whole house. “The Federal Government has grown too big, promised too much, and needs to restructure,” he told attendees.

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Walker noted that in 1912, federal government expenditures approached 3% of the annual gross domestic product (GDP); in 2015, it was closer to 20%. In 1912, Congress controlled 97% of the federal budget; now it controls 32%, he said. In addition, the U.S. debt to gross domestic product (GDP) ratio is about 75%; when Social Security and Medicare is added in, the debt to GDP is 105%.

“Future generations are getting a huge burden,” Walker said.

NEXT: What needs to be done

The government focuses more on consumption than investing, according to Walker. He suggested that with the looming insolvency of Social Security, the government needs to restructure and use the power of compounding. If nothing is done about Social Security, it will have to cut benefits, and plan sponsors and participants will be affected by this downdraft of unfunded retirement obligations and escalating health costs. “Soon, there will be only two workers for every retiree,” Walker pointed out. “The U.S. is not exempt from the laws of prudent finances.”

Changes Walker suggests for Social Security include increasing the base defined benefit, gradually increasing the normal retirement age (with exceptions for certain occupations), using a more accurate measure for inflation, and adding a supplemental automatic savings account.

For health care, Walker said it should be universal for all with options for additional coverage paid for by employers or employees.

Walker noted that employee benefit plans represent the largest pool of capital in the world, and many pensions, including public plans, are severely underfunded.

“It is increasingly important to supplement Social Security,” he concluded, adding that “It’s not too late to create a better future for employees, but we need to start now.”